This should be a big week more from a US dollar Index and bond yields perspective than any precious metals and industrial metals. So far September’s fall in gold and silver will be classified as quarter end profit booking and nothing else. This is a long term investment opportunity in gold and silver, Only if gold and silver continue to fall on or after 9th October that I will call it the beginning of a bearish trend.
Chinese markets will be closed from 1st October to 7th October. I expect bumper physical sale of gold and silver all over China. Chinese jewelry demand should be exceptional in their October vacations. Chinese will restock themselves once they start to open from 8th October. If Chinese demand for gold and silver remain subdued once they open then gold and silver can see a sell off.
Various Hindu festival’s will begin from 17th October (1 day of durga puja or navratras) and continue till end November (end of Hindu month of Karthick). Diwali is on 14th November. “Kalipuja” which is celebrated in Bengal and South India is on 13th November. Gold and silver demand will be very high. India will see a cyclical jump in gold and silver jewelery demand as well as physical demand. A lot of this has already been factored in by the markets. Lower gold and silver prices which if it continues will support the Indian jewelers and also result in higher demand for gold and silver. I expect rural demand for gold jewelery to beat street expectations. Urban India will buy more silver jewelry.
The beginning of an end to small and tiny jewelers in India due to TCS
The new law of Tax Collected at Source (TCS) for jewelers having a turnover of more than ten crore effective from 1st October will result in jewelers indirectly increasing the cost or they will find ways and means to reduce cost. As per various reports “The imposition of TCS will block an average bullion dealer’s working capital of Rs 67.50 lakh per year on sale of Rs 1,000 crore for which refund is to be claimed with income tax department after submission of accounts.” “Surendra Mehtaji” national secretary, India Bullion & Jewellers Association (IBJA) said that it takes 18 months on an average to get the refund. "It is simple arithmetic that 0.10% TCS for 200 times will siphon off a bullion dealer's 20% liquid capital within one year whereas, our Income tax liability will be only 1.5% ,which is just a very small fraction of the accumulated TCS of 20%. This will be a huge impairment for any company. Moreover, this will continue for successive years before refunds start pouring in, which is possible only after filing of return and scrutiny assessment done. This may take up to three years. The effect of this will percolate down to the manufacturing industry as the raw-material supply will be badly affected," said Mehta. (source The economic times)
Our View: Yesterday I attended a zoom meeting on this is issue. My personal view is that sum of ten crore per year will kill small and tiny jewelers all over India. A Jeweler in a small town of say Osian (near Jodhpur) in Rajasthan can easily have an annual turnover of Rs.10 crore. How will he be TCS complaint? Does he have an awareness of the TCS. There will be a big jump in legal compliance cost. Initially only bribes will increase as I am sure that law enforcement officials will take advantage of the lack of awareness in rural India and fill up their pockets. Converting Indian jewelers to an organized sector should not be done overnight. More and more tiny jewelery shops will be closed. Indirect unemployment will rise which no one will notice. Various jewelry trade bodies like IBJA and every city sarafa bazar associations are doing everything to prevent jewelry shop closures. But they are helpless at the pace of changes being made by NDA government (ignoring pandemic concerns).
Direction of the US dollar and technical will be the key today and tomorrow. I will prefer a buy on sharp dips strategy in gold and silver today. Copper is also bullish. The pace of rise of copper will slowdown in the final quarter of the year.
COMEX GOLD DECEMBER 2020 – current price $1865.50
- Gold needs to trade over $1843-$1856 zone to rise to $1909.60 and $1933. (this week)
- Crash or sell off will be there if gold trades below $1843 till Wednesday To $1810.90 and $1788.60.
COMEX COPPER DECEMBER 2020 – current price $298.17
- Copper will crash to $289.20 and $281.20 if it trades below $296.00.