Should You Buy And Invest In Gold Now?

Finance minister Nirmala Sitaraman has certainly stirred up the commodity market with the new tax and custom duty structures. Customs duties on gold have been drastically slashed from 15 per cent to a mere six percent. Of course, the market reacted with a four percent drop in prices almost immediately. Cheaper gold meant a rush to buy, triggering a large demand push in the Indian gold markets. 

“This will immediately bring down the domestic gold prices further and will drive higher consumer demand in physical gold and gold investments especially in old ETF’s due to its convenience and hassle free investing,” says Satish Dondapati, VP and Fund Manager, Kotak Mahindra AMC.    

Should You Buy Gold?  

But is it really worth participating in this buying frenzy? Let’s take a look. 

For those looking to buy jewellery or physical gold, there is probably no better time to rush to your nearest trusted jeweller and buy gold than now. 

“While cheaper prices may stimulate domestic demand in the medium term, short-term trends could be influenced by Federal Reserve policy decisions. There remains potential for further downside, given the unexpectedly high import duty cut,” says Anindya Banerjee, SVP- Head of Currency, Commodity & Interest Rates, Kotak Securities. 

However, physical ownership of gold comes with a myriad of challenges with regard to assurance of the quality and genuineness of the gold purchased, hassles in storage, illiquidity, and the difficulty while selling.While you may buy physical gold for jewellery, buying physical gold is not a good idea if you are looking to invest in gold. That is where instruments like Sovereign Gold Bonds and Gold ETFs come in.  

Should you invest?   

Now we address the question, should you really invest in gold post the budget? 

"With the recent fall in gold prices, significantly influenced by the union budget revision, this is an opportune moment for investors to consider adding gold to their portfolios. The reduction in prices has made gold more accessible, offering a chance to buy at lower rates,” says Veer Mishra, Founder of PLUS Gold, a digital gold investment platform. Experts suggest that one should have 10-15 per cent of one’s portfolio in gold. 

This is particularly beneficial for small investors who can now enter the gold market more easily. Gold has consistently been a reliable hedge against economic uncertainty and inflation, providing stability and growth over the long term. Unlike other assets, gold retains its value, making it a safe haven during economic downturns. 

“As the market adjusts to these new price levels, now is a strategic time to invest in gold and capitalise on its potential for future appreciation. By investing now, at a lower entry point, investors can maximise their returns as the market rebounds,” says Mishra. 

However, falling gold prices due to customs duty cuts could dampen the returns on SGBs nearing redemption. From the long-term perspective gold remains a good investment. 

The Tax Impact 

Gold ETFs are an attractive way to invest in gold, especially post the budget. “Another important announcement in the budget for gold ETF investors is the potential reduction in the long term tax incidence which changes from being at investors tax slabs to 12.5 per cent after a holding period of 2 years. This is a significant advantage from a tax perspective even as compared to physical gold and should stand at an advantage for investors in addition to other benefits that Gold ETFs provide,” says Chirag Mahta, Chirag Mehta, CIO, Quantum AMC. 

So, it is time to give your portfolio the golden edge.