If you do not own gold, now is the time...

Imposing import duty on gold has been just one of the attempts of UPA government to arrest current account deficit (CAD). The policy may not have had a meaningful impact on the deficit. However, what it certainly did was bring down the gold import volume dramatically (down 80% YoY). Meanwhile, the quantity of gold smuggled into the country has also growth disproportionately. And that has in many ways defeated the purpose of the import duty. So in what may come as a huge relief to gold investors, the NDA government is contemplating to cut the import duty. Given that the sentiment towards buying gold is already muted, the government probably does not fear stoking CAD concerns. More importantly, the constant foreign inflows after the change of government have also eased deficit concerns to an extent. Further fall in gold prices, in the event of a duty cut, should be seen as an opportunity to buy more gold we believe. While investors may not want to speculate on near term trend in gold prices, holding 5 to 10% of one's assets in gold continues to remain important. And the duty cut will certainly tilt the risk-reward balance for gold firmly in favour of the latter.