Gold Prices Down After Customs Duty Cut | NDTV Profit
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00:00We are now joined by G. Chandrasekhar, who is a commodities market specialist.
00:04Mr. Chandrasekhar, thank you and good evening.
00:07Mr. Chandrasekhar, you know, everybody is watching today.
00:11The only question on their mind is, should they buy on gold
00:15after the slash and custom duty or would you suggest that they wait?
00:19Because obviously, you know, the past inventories are still there.
00:25My sense is they should wait,
00:27because I see a further downside risk to gold and silver prices in the short term.
00:33OK, and therefore it would be worth waiting.
00:36But let me let me also mention that there is obviously some justification
00:42for the government of India to reduce the custom duty on gold,
00:46which was as high as 15 percent in the last two quarters.
00:50International prices and domestic prices had actually risen
00:54by about between 20 and 25 percent.
00:57But look at the relief.
00:58The relief is 60 percent from 15 percent to 6 percent is a 60 percent relief.
01:03Therefore, honestly, and I want to be blunt,
01:06I don't know what considerations lay with the finance minister
01:10and the finance ministry to give such a big relief
01:15in gold custom duty, because this is also going to cost.
01:19There'll be some revenue will be foregone.
01:22There'll be some revenue loss.
01:24How much is the revenue loss?
01:26We still don't know.
01:27That has not been quantified.
01:29Well, the jewelry trade is very happy, and therefore we should be happy
01:33that at least one section of the of the trade is happy about it.
01:38But I think the government has to come up with some rationale
01:42why duty was cut by as high as 60 percent from 15
01:48to 2 to 6 percent.
01:51This is number one.
01:52Number two, a lot of people are asking me will what impact
01:56will it have with demand for jewelry go up?
01:58With due respect, in my view, there'll be a marginally increase
02:02in demand for jewelry, physical, physical jewelry,
02:06primarily because of the upcoming festival season.
02:09And then, of course, the marriage season, et cetera.
02:12But medium term, even these current prices
02:16are in some way leading to demand destruction.
02:20And people are not going to enjoy buying at even the current lower levels.
02:26And therefore, there will be an impact on the trade
02:29and on consumption of gold within our country.
02:34Oversee, you can you will see it in 2025.
02:37Put it that way. Yeah.
02:38Right. And as we are flashing those graphics on the screen,
02:41your view on Titan, Kalyan and Senko,
02:44you know, especially with respect to inventories that are held by them.
02:49Of course, Titan usually holds the most.
02:52Right. Obviously, those companies that had bought gold
02:58at higher prices, say, two thousand two hundred, two thousand three hundred,
03:03two thousand four hundred dollars an ounce
03:06are all will all be ruling now, primarily because the prices
03:10have sharply corrected both in dollar terms
03:13and in rupee terms in particular.
03:17And therefore, they would in some way, there is an inventory loss,
03:21loss of value in that inventory, how they would recover, whether a quicker
03:28quicker liquidation of these stocks at lower prices would help
03:32is a call they would take.
03:34But the answer to this question is how much inventory,
03:40high price inventory each company is holding.
03:44We will know how much high price inventory each company is holding.
03:48But more often than not, most companies actually average out the prices
03:53and therefore not much of inventory
03:56may be purchased at, say, two thousand three hundred or two thousand
04:00four hundred dollars.
04:01That's my view.
04:02And therefore, the loss of inventory
04:05value could may not be very hard.
04:08Put it that way.
04:09Right. Mr. Chandrasekhar, I also wanted your view on sovereign gold
04:12bonds now, you know, in the past they have provided for steady returns.
04:16But obviously, with this cut in customs duty,
04:20people who are looking to redeem now, how do you see the impact on that?
04:26Obviously, after five years, people are free to redeem,
04:30although the tenure is eight years.
04:32And therefore, when prices are down, people will have to take a call
04:36whether should I should I redeem it now or wait for one, two or three years
04:41away if prices would rise.
04:44I think it's a very, very tricky situation for them,
04:46because in the international market, let us be very clear.
04:50Gold at two thousand three hundred or two thousand four hundred dollars
04:54announced actually carries up to two hundred dollars
04:58announced as war risk premium.
05:01Assume a situation may be hypothetical tomorrow.
05:05There is a ceasefire both in Russia, Ukraine
05:09conflict and the Hamas conflict.
05:11Gold will collapse.
05:13It'll come closer to two thousand dollars announced.
05:16And that's a war risk premium that the market carries.
05:20And then the financial investors who are heavily invested
05:24in gold as a speculative investment, they'll also be exiting the market.
05:30Therefore, there could be a big correction.
05:31But it's a hypothetical situation.
05:34You can't rule out the possibility, though.
05:36Therefore, for gold sovereign bond holders,
05:40I would think it is safer to redeem
05:44redeem soon as soon as possible.
05:48But also remember, my call is in the last quarter of this year.
05:52Gold prices will have the potential to rise from the current levels.
05:56Right. And final question, of course, you know, we just heard
06:01comments about how the government actually did this,
06:04keeping gold smuggling in mind.
06:05What's your view on that?
06:07And the second part I wanted to ask you is the organized sector
06:11versus the unorganized sector, you know, where a lot of people in India
06:14still buy gold in cash.
06:17Right. So it's like this on smuggling.
06:19My take is very clear and I want to be very blunt.
06:23There is there is one section of people in the trade
06:26that exaggerate the impact of smuggling.
06:30Smuggling did happen in this country in the 60s and the 70s,
06:33even in the 80s.
06:35And, you know, we've also seen Hindi movies
06:39both coming from Dubai with smuggled gold, etc.
06:42Those days are over.
06:44The government has enough surveillance mechanism,
06:48enough of a coast guard
06:51and security related facilities.
06:54Therefore, it's not possible for for anybody
06:58to smuggle gold in very large quantities.
07:01It is possible passengers coming may carry one
07:04one coin of gold or two coins of gold and kind of escape.
07:08But that I don't see that as a big case of smuggling.
07:12Therefore, the excuse or the reason
07:16given that it will it will reduce smuggling to my mind
07:20seems very, very superficial.
07:22I don't think it will hold water, honestly.
07:25Number two, what is the second question?
07:26Sorry, what did you say?
07:29Because, you know, a lot of people are still buying gold in cash
07:34from the unorganized sector.
07:35So what's your view on that?
07:37Obviously, it will happen because they would they would want to avoid
07:41the the the duty component of this.
07:45And there are sellers who are willing to compromise.
07:48And there are buyers who are willing to pay cash and compromise.
07:51But all said and done, let us be honest.
07:54Our country, there is an informal sector almost everywhere.
07:58We cannot wish away the informal sector.
08:00And the informal sector also contributes very substantially
08:05to India's economic activity.
08:07I'm not saying I think we should not dismiss the the informal sector
08:12because it is it is a good big contributor to economic growth.
08:16We need regulation, which is very important.
08:18But but given the vastness of this country
08:22and the levels of income and the rates of taxation
08:26and the motivation to to remain in the informal sector
08:31rather than in the formal sector, which is subject to a huge amount
08:34of regulation and discipline, I think we need to look at all that.
08:39Therefore, there will be a set of people who will who will want to buy gold
08:43informally paying cash, and there will be a set of traders
08:47will be happy to happy to sell to those buyers.
08:51And therefore, it's both the responsibility of the buyer and the seller
08:56to to to have some kind of self-imposed discipline.
09:02But but this is how it has been going on.
09:05But over the last 10 years, I find the the informal
09:09a sale of gold is very substantially reduced.
09:12There is a certain formalization of of this gold business.
09:16I've actually written a policy paper
09:19for the SEBI and for the government of India.
09:21How what are the reforms that are required in the in the in the bullion sector
09:27and the gold jewellery sector and how India can actually become a price setter?
09:33We are today a price taker in the global market as far as gold is concerned.
09:37Although we are the largest importer, we should be setting international prices.
09:42And there are there are several steps that the government needs to take
09:46that the government needs to take for us to become a price setter.
09:50Once we reach that situation, I think the there'll be further
09:55a further decline in the informal business in gold and silver.
10:00All right, Mr. Chandrasekhar, thank you very much for joining us on the broadcast
10:03and explaining to us, of course, his advice to all those of you
10:07who are looking to buy now is to wait for some more time.
10:11Thank you for joining us. Thank you.
10:16Thank you for joining us. Thank you for joining us.