Glittering Gold and its prospects for India

July 10, 2012

Any Indian considers this investment of highest regard. Its not only now but has been here for time immemorial, especially in the form of jewellery. Speaking of returns it has outperformed equities for the past few years. This is because it is considered to an international currency ands almost same value can be expected around the world.

Safe haven as many consider it is mainly because of this international currency nature. India has been the biggest consumer of gold with China just outnumbering it in the previous quarter. This soon will change consumption descended mainly because of strike by Bullion association after the tax implications announced in budget 2012. Gold is considered to have generally a negative correlation with equities of -1. i.e as equities accelerate the prices of gold should plummet accordingly.

This is valid only if change is too rapid in a short span of time. Albeit gold brings smiles to the faces of Bahus (daughter – in laws) of the house, its recent spikes is a cause of worry for the Indian government as it has inflated the imported bills. To worsen the scenario the rupee depreciation adds strong support to the prices of gold. All this is mainly because India imports most of its gold. So it can be inferred that as far as rupee depreciates one can expect strength in gold, at least till the time un-certainities prevail around the globe.

Recent breaking of 30,000 is seen as bullishness but one should be cautious of announcements of Fed reserve as any decision which supports the dollar will add to negatives to the fundamentals of gold as they trade as chalk and cheese the world over. Domestically it should be noted that about a little less than 2/3rds of gold buying is done in rural areas and any convivial news from monsoon will always spurt the prices. A fact to be noted that gold prices tend to have a negative bias after Diwali season. So any buy after the festivities is considered to be a smart buy.

Editor: Pakshaal S.Shah

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