Gold spirals ~ rate starts looking up again....

The regular trend is perhaps back… the yellow medal has been the frenzied attraction for some time now….. Gold has been money for many reasons – it can be traded easily; it always has a high value to weight ratio; can be divided into smaller units without destroying; tougher to have counterfeits and the scarcity of gold has only been going up. Gold has always been used as a symbol of  status and power.  Today 6th June 2013 closed at Rs.2784/- for 1 gram of pure gold (24Ct) and Rs.2603/- for 22 carat, certainly on the upswing than it was on mid May 13.

Firstpost reports that the Govt has hiked the import duty on the precious metal to 8 percent from 6 per cent, in a bid to curb demand. This is the second hike in the duty in six months as gold imports touched an alarming 162 tonnes in May. The imports touched a staggering figure of $15 billion in the last two months. The hike is aimed at curbing import of gold which is mainly responsible for the rise in CAD impacting the country’s foreign exchange reserves as well as the rupee value. CAD, which is the difference between inflow and outflow of foreign currency, touched a historic high of 6.7 per cent of GDP in the quarter ending December 2012.

Finance Minister P Chidambaram  is quoted as stating that surging imports are unsustainable and advised the banks to tell customers not to invest in the precious metal. “Banks have a role to play in dampening the enthusiasm for gold…I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold”, he said while addressing the annual general meeting of the Indian Banks’ Association (IBA). The Reserve Bank, Chidambaram said, has already “advised banks they should not sell gold coins…I hope a day will come when we regard gold as any other metal, it just shines a little more than copper or bronze.”

Confusing to say the least as common man still sees the yellow metal as a potential means of investment and almost all banks and Post Office have been selling their own branded gold, slightly above the market rate and have been making huge money out of the sale………. now PC wants them to stop !!

Sometimes they say that the surge in Apr and May 13 followed fall in prices in International market.  India is a big importer… in April it was 142 tonnes of gold, and  in May we imported 162 tonnes of gold; against the monthly average of  70 tonnes of gold last year.   Earlier this month, the government came out with the first issue of inflation indexed bonds, which aims at discouraging gold investments.

Meantime,  World Gold Council (WGC) said hike in import duty on gold will make the precious metal expensive, while cautioning that curbing supply will not be effective in the long run as this is likely to lead to demand being met through unauthorised channels. WGC India chief said that demand for gold, whether in the form of jewellery or investment (bars and coins), is driven by millions of individuals investing as part of their household savings and is not discretionary spending for consumption. “People buy gold as a long term investment to protect their wealth and gold also has huge significance socially, emotionally and economically in India,” he observed.

Here is a chart showing the movement in price of gold for the past one year

With regards – S. Sampathkumar

News courtesy : Firstpost.com; Chart courtesy : indiagoldrate.com