Gold price changing its course after import duty cut

Gold Prices have reversed in course with the start of February, falling 4% last week. The main headlines of last week were Gold Import Duty cut by Government in Budget 2021. Below is the table showing Indian Import Duty Structure, Indian Gold Imports and Indian Gold Price of last 10 years.

Import Duty on Gold Bars Service Tax/ VAT/ AIDC/SWS GST Effective Tax and Duty Yearly Gold Imports (in Tonnes) Avg Gold Price (Rs /10 gm)
Upto 2011 Rs 300/ 10 gm Rs  300/ 10 gm 1071.0 23624
17-Jan-12 2% 3.3% 5.30% 1015.0 28639
16-Mar-12 4% 3.3% 7.30% 1015.0 28639
21-Jan-13 6% 3.3% 9.30% 959.4 26440
5-Jun-13 8% 3.3% 11.30% 959.4 26440
13-Aug-13 10% 3.3% 13.30% 959.4 26440
Jan-14 10% 3.3% 13.30% 994.8 24835
Jan-15 10% 3.3% 13.30% 1065.0 23903
Jan-16 10% 3.3% 13.30% 642.1 27014
Jan-17 10% 3.3% 13.30% 975.3 26320
Jan-18 10% 0.30% 3% 13.30% 871.7 27861
Jan-19 10% 0.30% 3% 13.30% 827.4 31542
31-Jan-20 12.50% 3.00% 3% 16.26% 394.3 42182
1-Feb-21 7.50% 3.32% 3% 14.07%  — 48300

Source: Ministry of Commerce, RBI, WGC
Since the coronavirus crisis became the primary driver of financial markets last March, the greenback adopted the role of a safe-haven and formed a strong inverse correlation with major equity indexes in the US. Whenever stock markets staged a rally, the US Dollar Index, which tracks the USD’s performance against a basket of six major currencies, turned south and vice versa.
However, with investors looking to price normalization amid strong upbeat macroeconomic data releases and the coronavirus vaccine rollout, the above-mentioned correlation seems to have started to weaken lately. For the first time in nearly a year, better-than-expected data releases from the US provided a boost to the USD and weighed on Gold despite the fact that Wall Street’s main indexes edged higher to new all-time highs. Additionally, the USD began to outperform its rivals as the US economy looks to be on a firmer path to a steady recovery, especially when compared to major European economies
The US Bureau of Labor Statistics’ monthly publication showed that Nonfarm Payrolls in December increased by 49,000. Although this reading came largely in line with the market expectation of 50,000, December’s print of -140,000 got revised down to -227,000 and triggered a USD selloff.
Next week
The economic docket will be relatively eventless with regards to high-impact macroeconomic data releases. Trade Balance data from China and Industrial Production report from Germany will be looked upon for fresh catalysts at the start of the week.
On Friday, the fourth-quarter Gross Domestic Product (GDP) data from the UK and the University of Michigan’s Consumer Sentiment Index from the US will be the last data releases of the week.
Meanwhile, political developments surrounding additional fiscal stimulus in the US will be watched closely by market participants. Earlier in the week, US President Biden’s administration kicked off negotiations with House Republicans on the aid bill and a positive outcome could help Gold rebound as it would point out to an increase in the money supply.
Technical view
Gold prices have broken down the symmetrical triangle on weekly chart strongly, next support of Rs 46500 (38.2% retracement) and Rs 43650 (50% retracement).

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