An Overview OF Gold Price Trend
Commodities / Gold and Silver 2015 Mar 19, 2015 - 06:10 PM GMTBy: Submissions
Srinivasan Rangaraj writes: We all know that Gold is the precious metal in the world. Investors put their large chunk of their capital in gold metal as a part of their investment strategy. However, in India, people are very much fond of this metal. Here, they have very much interest in wearing gold ornaments rather than going for gold investments. That too, they wear these ornaments during functions like marriages, etc. So, most of the times, approximately 20000 tonnes of the gold, are lying idle in the houses of many households or in the bank lockers.
Indian people affection towards this yellow metal always keeps India within two places in gold consumption, globally. Sometimes, India comes first and china comes in second place and vice versa.
India imports gold about 800-1000 tonnes per annum. (Reference:-http://articles.economictimes.indiatimes.com/2015-03-01/news/59642179_1_gold-deposit-scheme-new-scheme-sbi-research)
The present day government has also strived like their predecessors, for bringing out unemployed gold into usage by pronouncing new gold schemes substituting preceding regimes’ gold deposit and gold metal loan schemes in it’s latest union budget.
In the new gold monetization schemes, the depositors can make interest by keeping their gold as deposits in banks. The jewelers can get loans for their gold.
The government has also put forward a Sovereign Gold Bond, with a fixed rate of interest, can be redeemed in cash at the prevailing gold price during payback period and it planned to mint gold coin with Ashok Chakra
(Reference:-http://www.thehindu.com/business/budget/union-budget-201516-proposes-steps-to-monetise-gold-contain-imports/article6945325.ece)
The government may allow banks to keep a part of the deposited gold in RBI like cash reserve ratio or statutory reserve ratio.
(Reference:-http://www.business-standard.com/budget/article/gold-sovereign-bonds-to-carry-1-5-3-interest-rate-115030100449_1.html)
However, some experts feel that the success ratios of these schemes hinge on fixation of interest rates for the both Sovereign Gold Bond and gold monetization schemes and, pegging of the minimum quantity of gold, for participating in a gold monetization scheme etc., by the government of India.
They say that interest rates in these schemes have to be fixed in the minimum range of 5-6 % and 50 grams are required to be the minimum size for entering into aforesaid gold schemes.
(Reference http://articles.economictimes.indiatimes.com/2015-03-01/news/59642307_1_gold-fund-gold-reserves-gold-holdings?intenttarget=no)
Bringing out of idle gold and Minting of gold coins inside is expected to discourage gold imports and there by these methods paves the way to furthermore reduce the already shrunken current account deficit.
Gold imports augmented from USD 1.55 billion in January 2015 to USD 1.98 in February 2015 by scaling up 48.78% on an annual basis.This was at USD 1.34 billion in December 2015, after a great drop.
(Reference:-http://www.moneycontrol.com/news/commodities/gold-imports-rise-to-36198-bnfebruary_1328953.html?utm_source=ref_article)
When current account deficit hit a huge height during the month of the August, 2013, the present Reserve bank India governor Mr. Ragu Ram Rajan and the previous government initiated various measures to cut gold imports. While the previous government hiked gold import duty from 2% to 10%, RBI sets the criteria that gold importers had to re-export 20% of their gold imports before their next imports.
These measures trimmed down gold imports greatly. The reduction in gold imports and other economic related actions reduced the current account deficit to a great extent.
The RBI relaxed its 20% re-export criteria for gold imports during November month of the year, 2014. Even after this easing action, gold imports plummeted in the December, 2014.
(Reference-http://www.marketoracle.co.uk/Article43806.html)
In International Markets, US employment data shows robust performance in February, 2015. The unemployment rate slipped to 5.5%, decreasing by o. 4%. The US economy has not witnessed this ever since May 2008.
The US labor divulged that nonfarm employment had augmented to 295,000 in February, 2015. It had also ascended to 239,000 in January, 2015.
Hence, the market expectation is that Fed may hike interest rates, on the basis, jobless rate, in June month’ review meeting itself which is very well before the anticipated time.
Gold prices tumbled to the lowest level of $1,147.10 ever since 1st December, 2014 on this expectation.
(Reference:-http://www.dailytimes.com.pk/business/14-Mar-2015/asia-gold-demand-picks-up-due-to-lower-prices-but-caution-prevails)
Fed also reduced its estimation on growth, inflation and interest rate projections.
Fed Chair Janet Yellen told that deleting the word “patient” didn’t mean Fed would become impatient in hiking the interest rate after the completion of its meeting in a press meeting and cautioned that the soaring dollar had impacted greatly on US exports and shrunk the inflation.
Fed’s and its chair person’s announcements lifted the prices of gold from a four-month low of $1,141.60 to two weeks’ high
(Reference:-http://www.investing.com/news/commodities-news/gold-trades-above-$1,170-on-dovish-fed-333161 )
Though gold may not give interest, it can be hedged against inflation.
Hence, in my view, long term investors can accumulate gold in each and every decline.
© 2015 Copyright Srinivasan Rangaraj- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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