Gold Prices Plummet After Budget 2024 Announcement: Is This a Buying Opportunity?

Gold prices saw a significant drop following the announcements in Union Budget 2024, with the price per 10 grams on the Multi Commodity Exchange (MCX) opening at ₹72,838. This opening was quite optimistic, but shortly after, the situation took a dramatic turn.

Finance Minister Nirmala Sitharaman revealed a reduction in customs duty on gold and silver, slashing it from a hefty 15 percent to just 6 percent. This announcement sent shockwaves through the market, causing an immediate sell-off as investors reacted to the news.

After the announcement, gold prices plummeted to an intraday low of ₹68,500 per 10 grams, marking a staggering loss of ₹4,218. But as often happens in financial markets, some investors saw this as a buying opportunity and began to enter the market, leading to a partial recovery in gold prices.

Commodity experts opine that this drop can largely be seen as the market adjusting to the new duty structure. There seems to be a critical support level around ₹68,000 for gold prices, which some analysts suggest could provide good buying opportunities for investors looking to capitalize on the dip.

Sugandha Sachdeva, founder of SS WealthStreet, shared insights on how this drastic shift in prices could be linked to the Budget announcement. She explained, «As an immediate impact, the announcement has led to a sharp corrective move in the prices of gold and silver, reflecting market adjustments to the new duty structure. We might witness additional downside in gold and silver prices as the market absorbs the duty reduction’s impact.»

While some investors are concerned about the immediate volatility, there’s a belief among many that the overall sentiment may stabilize in the long run as the advantages of the new duty structure become clearer.

Another market expert, Anuj Gupta, Head of Commodity & Currency at HDFC Securities, indicated that the recent drop in gold prices stems from the customs duty reduction announcement. He emphasized that this price drop should be viewed as temporary, suggesting that global influences, such as potential US Federal Reserve rate cuts or a declining US dollar, will soon impact the market dynamics favorably.

«This is a great time for bottom fishing—investors should consider a buy-on-dips strategy,» Gupta remarked. He pointed out that sustaining above ₹67,800 could indicate a good bounce-back opportunity. Currently, the spot gold price remains in the range of $2,400 to $2,450 per ounce, creating a scenario where traders will look for a significant breakout on either side of that range.

Further elaborating on the short-term outlook for gold, Sugandha mentioned that both gold and silver remain in a structural uptrend. However, a near-term correction seems imminent, which could pave the way for attractive buying opportunities at lower price points. She predicts near-term support for gold at ₹68,000 per 10 grams, while for silver, she anticipates support between ₹82,000 and ₹80,000 per 10 grams.

Vikas Singh, MD and CEO of MMTC-PAMP, weighed in on the broader market implications of the duty cut. According to him, «Gold in India is more than just a precious metal. There is an emotional connection tied to the yellow metal, especially during significant occasions. Today’s development of reducing duty on gold to 6% is a welcomed move that could drive down retail prices and diminish the grey market.»

Singh emphasizes that these adjustments could catalyze increased consumption of gold in India and significantly contribute to the country’s economy by establishing India as a precious metals hub.

Leshna Shah, founder of Irasva Fine Jewellery, also expressed optimism regarding the duty reduction’s impact on the jewellery industry. She believes it will make gold more affordable, encouraging consumer demand and promoting legitimate business practices within the gold trade. Shah highlighted that this reduction would boost production volumes, providing greater employment opportunities for artisans and craftsmen.

As the dust settles from the budgetary announcements, Hareesh V, Head of Commodities at Geojit Financial Services, noted the inherent volatility in the gold market. He mentioned how the customs duty cut from 15% to 6% could lead to declining domestic prices, potentially lifting demand for gold and silver in the long run.

The international gold market echoes these trends, with prices hovering around $2,415 per ounce. Despite the fluctuations in the MCX, both the gold and silver markets are adjusting and stabilizing around this news, allowing traders to keep a close watch on market trends.

Jateen Trivedi, VP Research Analyst at LKP Securities, pointed out the broader implications of the budget announcement. «With the Basic Custom Duty and Agricultural Infrastructure Development cess (AIDC) on gold reduced to 6%, this adjustment can lead to a significant decline in domestic prices. However, the overall volatility in the market will persist as investors weigh this news against global market conditions.»

The anticipated interest rate cuts in the US add another layer of complexity, making it a favorable time for long-term investments in gold within the Indian market. Investing now could be strategic as prices are likely to shift, constantly reflecting both domestic and international influences.