Monday, 12 December 2011

Today's One Pager


The story of gold has a deeper message, one that has none of the transitory qualities of what we choose to use as money. Seen in this broader sense, the story of gold has no ending.” _ Peter Bernstein in The Power of Gold

When compared in world level India is considered to be as the largest consumer of Gold. Until 1990, Gold Control Act, huge quantity of gold was entering into India either through legal or illegal means. The private holders used to hold around 10 tola bars of gold which would be converted into jewellery during family functions.  Investment in 22 carat gold still beats the security markets and it still remains  the favoured mode of investment. This attitude of the people has paved way for the banks to bring in the Gold Deposit Scheme, and even sale of gold through Banks.

As per the report of the World Gold Council in November 2011, it is observed that on a yearly basis the increase of demand for gold in India is around 15% despite the increase in the value by around 46% and the highest gold price close during the year was at INR. 90421.97/oz on November 30, 2011.

The World Gold Council reports: “In the longer term, we are confident that India’s favorable demographic trends, the growing affluent middle class and declining age profile, should ensure a buoyant consumption growth.”

India produces only 0.5% of its annual gold consumption and the remaining is imported. The import of gold is roughly around 700 Tons per annum.

Market condition: When compared to the previous year the percentage of sale of gold in quantity has gone down due to increase in the prices, however this has not affected the profits of the players in the gold market as the people still try to buy gold with all the amount that they possess

History of gold during inflation: In1970’s gold was valued as per the gold standards. The inflation during 1970’s was up 306% and the value of the gold was officialy $35 an ounce. Despite the increase in inflation the gold which was priced at $850 per ounce in 1980 had dropped down to $300 in 2001 losing 65% of its value. On a study it is observed that inflation does not necessarily translate into higher gold prices.

Demand for Gold:

Despite the risk of fall in Gold prices it still has its market due to:

-         fear of inflation
-         the fear that most of the commercial bonds or other paper documents may lose their intrinsic value.
-         Looking at the history it is observed that despite the fall of its prices on a temporary basis it is believed that the prices of Gold would continue to increase.

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