In a dramatic shift in the domestic bullion market, gold prices saw a sharp decline of Rs. 15,900 per tola on Monday, following the government’s decision to reduce the customs duty on the precious metal. The move, which came after a recent Cabinet meeting, has caused significant price adjustments in the local market, benefiting consumers but posing challenges to businesses in the gold trade.
Government’s Customs Duty Cut Sparks Price Drop
On Monday, gold was trading at Rs. 151,300 per tola, down from Rs. 167,200 per tola on Sunday, marking a steep reduction. The Federation of Nepal Gold and Silver Dealers’ Association (FENEGOSIDA) confirmed that the price decline was due to the government’s decision to cut the customs duty on gold, which had been at 20% since May. The new customs rate now stands at 10%, a move that has resulted in the significant drop in gold prices in the domestic market.
Previously, the 20% customs duty on gold was introduced as part of the fiscal budget for 2024/25. This higher rate had been a point of concern for both consumers and businesses, leading to requests from industry stakeholders for a revision. Gold entrepreneurs had expressed their frustration with the high customs duties, which not only raised the price of gold in Nepal but also fueled smuggling activities from neighboring India, where gold prices were comparatively lower due to a reduced customs duty.
The reduction in the customs duty is expected to curb gold smuggling and help stabilize the local gold market. Industry experts believe that this policy change will encourage the formal importation of gold, benefiting both the government and the legitimate gold trade.
Silver Prices Also See Decline
Alongside gold, silver prices also experienced a decline. On Monday, silver was trading at Rs. 1,845 per tola, down from Rs. 1,960 per tola on Sunday, marking a decrease of Rs. 115 per tola. This price drop comes after the government similarly reduced the customs duty on silver from 15% to 10%, aligning with the changes made for gold.
Diyesh Ratna Shakya, Senior Vice President of FENEGOSIDA, confirmed that the drop in silver prices was a direct result of the new customs duty rate, which has been in effect since Monday. The reduction in customs duties for both precious metals is expected to help lower prices in the domestic market, potentially increasing demand and stabilizing the market.
International Gold Prices and Market Dynamics
The decline in gold prices in Nepal is not solely attributable to the changes in customs duty. International gold prices also played a role in the price adjustment. On Sunday, gold was trading at USD 2,716 per ounce in the international market. However, by Monday, the price had dropped to USD 2,670 per ounce, marking a decline of approximately USD 46 per ounce.
According to Shakya, the reduction in customs duties helped lower the price of gold by about Rs. 13,500 per tola, while the fall in international gold prices contributed an additional Rs. 16,000 per tola to the price drop in Nepal. This dual impact of both local and international factors has led to a substantial decrease in the price of gold in the domestic market.
The price of gold in Nepal has been volatile in recent months, driven in part by fluctuations in the international market. Despite this, the recent customs duty reduction has provided some relief to the local market, which had been struggling with high gold prices.
Addressing Gold Smuggling and Market Stability
One of the key motivations behind the government’s decision to reduce the customs duty on gold was to curb the illegal gold trade between India and Nepal. Prior to the customs duty cut, the disparity in gold prices between the two countries had created a lucrative market for smugglers, who would bring gold into Nepal from India where customs duties were significantly lower.
In India, the government had already reduced the customs duty on gold and silver from 15% to 6%, making the metal more affordable across the border. This disparity made gold imports into Nepal less attractive through official channels, while smuggling became increasingly prevalent. By cutting the customs duty, the Nepali government hopes to discourage smuggling and promote legal gold imports, which could help stabilize the local market.
Shakya emphasized that with the new lower customs duty, the volume of legally imported gold is expected to increase, benefiting the local gold trade. He added that in recent months, the daily demand for gold in Nepal had dropped to below 10 kilograms, a sign of reduced consumer interest due to high prices. With the price now lower, the demand for gold is expected to rise, providing a boost to the gold business in Nepal.
Record Gold Prices and Consumer Impact
Prior to the customs duty reduction, gold prices in Nepal had been on an upward trajectory, setting new records in recent months. On October 31, 2024, gold prices in the domestic market hit a historic high of Rs. 171,000 per tola, a level that had many consumers and businesses concerned about the affordability of the precious metal.
The high gold prices were driven by a combination of factors, including global market dynamics and the impact of domestic economic conditions. As international gold prices climbed and the Nepalese rupee weakened against the U.S. dollar, gold became increasingly expensive for local buyers. The recent decline in prices is a welcome change for consumers, although the market remains volatile, and further fluctuations are possible depending on both domestic and international economic conditions.
With the price of gold now lower, consumers are likely to see increased availability and potentially lower premiums for the precious metal. However, it remains to be seen whether these price reductions will be sustained in the long term, or if external factors such as global inflation or geopolitical tensions could drive prices higher again.
Outlook for the Gold Market
The reduction in the customs duty on gold and silver is a positive development for the gold market in Nepal, but it is only one piece of the puzzle. Market participants will continue to closely monitor global gold price trends, exchange rates, and domestic economic factors that could influence the price of gold in the future.
As the market adjusts to the new price levels, the government and industry stakeholders will likely continue to assess the effectiveness of the customs duty reduction in curbing smuggling and stabilizing the gold market. While the immediate impact of the customs cut has been a drop in prices, the long-term effects on the local gold trade remain to be seen.
For now, gold consumers in Nepal can benefit from the lower prices, but market volatility may continue, and it is important for both consumers and businesses to remain vigilant in monitoring market developments.
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