Why is yel­low metal shin­ing more? ALL THAT GLIT­TERS

Gold prices have hit an all-time high, re­sult­ing in fall­ing im­ports. HT ex­plains the fac­tors in­flu­enc­ing price rise

HT Ludhiana Live - - City/sports - Gau­rav Choudhury gau­rav.choudhury@hin­dus­tan­times.com Why do peo­ple in­vest in gold? Why are gold prices ris­ing? What about the trends in In­dia? How do high prices im­pact im­ports? How big is the In­dian jew­ellery mar­ket?

Gold is one of the sev­eral as­sets that peo­ple in­vest in. Un­like eq­ui­ties or bank de­posits, gold is a phys­i­cal as­set and has been a tra­di­tional favourite av­enue for park­ing sur­plus in­come. Gold is con­sid­ered to be a safe haven as­set. With high in­fla­tion and volatile stock mar­kets, gold prices have hit an all-time high. It has risen 35% over the last one year as in­vestors in Europe and the US flock to add more glit­ter to their in­vest­ment port­fo­lio rather than park funds in un­sta­ble and risky eq­uity mar­kets. What is the trig­ger be­hind the lat­est price rally? The spec­u­la­tion that the US Fed­eral Re­serve was plan­ning to an­nounce a fresh round of mone­tary stim­u­lus at a key cen­tral bankers’ meet­ing has knocked up bullion prices. US Fed chief Ben Ber­nanke will likely an­nounce a third round of bond-buy­back pro­gram known as quan­ti­ta­tive eas­ing later this week. Why would a mone­tary stim­u­lus in the US push up gold prices? A mone­tary stim­u­lus, by def­i­ni­tion, will in­fuse more money into the sys­tem. The re­sul­tant in­crease in money, some ex­perts be­lieve, will likely push up in­fla­tion through the in­ter­play of the clas­sic text­book model, where prices go up be­cause too many would be chas­ing too few goods. As in­fla­tion goes up, peo­ple, it is widely be­lieved, will in­vest more in gold to pro­tect ero­sion of their as­set val­ues in the wake of high prices. Gold con­sump­tion and im­ports are set for a sharp slow­down in In­dia as a wob­bly world econ­omy, weak ru­pee, patchy mon­soons and a slow­down in the broader econ­omy are threat­en­ing to take the sheen out of the yel­low metal’s sales in the com­ing months. In In­dia, a weak do­mes­tic cur­rency, which has slid more than 12% since March, has NEARLY 60% OF THE TO­TAL GOLD DE­MAND IN IN­DIA COMES FROM RU­RAL AR­EAS, MOST OF WHICH IS BOUGHT DUR­ING WED­DINGS Gold im­ports have fallen more than 56% to 131 tonnes dur­ing April to June this year, the in­dus­try body World Gold Coun­cil said in a re­port re­leased last week. An­a­lysts said hard­en­ing prices will fur­ther knock down gold’s de­mand in In­dia, the world’s largest bullion con­sumer. How do mon­soon rains af­fect gold prices in In­dia? likely hit farm in­come, which sup­ports two-thirds of In­di­ans, or about 800 mil­lion peo­ple. Ru­ral spend­ing on most items — from tele­vi­sion sets to gold — goes down with in­ad­e­quate rains and farm out­put. Low farm in­come, com­bined with high over­all in­fla­tion, will leave ru­ral house­holds with less sur­plus in­come to in­vest in as­sets such as gold. Nearly 60% of the to­tal gold de­mand in In­dia comes from ru­ral ar­eas, most of which is bought dur­ing wed­dings. In­dia is the world’s largest mar­ket for gold jew­ellery, ac­count­ing for most of the nearly 1,000 tonnes of gold im­ports in 2011. Ac­cord­ing to the World Gold Coun­cil, 75% of women say they are con­stantly search­ing for new de­signs. What drives the de­mand for gold in In­dia? The al­lure of gold in In­dia is driven by a mix of fac­tors in­clud­ing van­ity. More than 50% of gold jew­ellery is bought for wed­dings. The fes­ti­val of Dhanteras, the most aus­pi­cious day in the cal­en­dar just be­fore Di­wali, has tra­di­tion­ally cre­ated a strong sea­sonal surge in sales. De­mand also surge dur­ing the Akshaya Tri­tiya fes­ti­val in May. The mo­ti­va­tion for a jew­ellery pur­chase can be in­ex­tri­ca­bly linked to How will a drop in gold im­ports help In­dia’s over­all eco­nomic man­age­ment? Economists have at­trib­uted In­dia’s widen­ing cur­rent ac­count deficit — the gap be­tween ex­port earn­ings and im­port pay­ments — to ris­ing gold im­ports, among other causes. In­dia’s gold im­port had jumped nearly 50% to $60 bil­lion in 2011-12 from the pre­vi­ous fi­nan­cial year push­ing the cur­rent ac­count deficit to a record $78.2 bil­lion or 4.2% of GDP. This had prompted the gov­ern­ment to hike im­port duty on gold to curb im­ports.

fur­ther fanned im­ported bullion prices. A weak ru­pee makes all im­ported goods --from gad­gets to gold costlier. This year, de­fi­cient and late mon­soon rains are set to trim food out­put and

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