Has gold lost sheen after custom duty cut announced in Budget 2024?

economictimes.indiatimes.com:

gold ETFs and sovereign gold bonds, which track prices of physical gold, also crashed by 5-6%. Investors felt shortchanged as the worth of their investments eroded overnight. Have gold investors really been robbed of their gains by the government?

The nine percentage point cut in the import duty on gold is acute.

“This is the sharpest reduction on record and the lowest since June 2013,” observes Kavita Chacko, Research Head, India, World Gold Council. Though the reduction in duty caused the price of gold to crash, and gold bond and ETF prices also declined, many other gold bonds saw a marginal 1-3% drop. The impact on SGB issuances varied as per the time left for bond maturity, trading volumes as well as premium that the bond was trading at before the Budget.

Mrin Agarwal, Founder Director, Finsafe India, insists, “The impact of the duty cut on the value of gold has been overstated.”

This cut in import duty must not be seen in isolation. It is the first after a sustained rise in import duty on gold over a period spanning 12 years. The import duty had steadily risen from 2% in January 2012 to touch 15% in July 2022, with only one cut in the intervening period.

Clearly, duty hikes in gold have been far more frequent than cuts. After every hike, the domestic value of gold and, by extension, the traded value of gold ETFs and SGBs have also increased. So, even as gold investors have suffered a loss after the recent cut, they have also gained from duty hikes in the past.

In fact, when the first SGB was introduced in November 2015, the import duty on gold was 10%, observes a note by Primeinvestor.in. This was hiked to 12.8% in July 2019, slashed to 10.75% in February 2021, and hiked again to 15% in July 2022. The two hikes