For decades, gold has been one of the most popular investments. It is one of the most heavily traded products in the commodity markets. Like every other commodity, its price is influenced by the supply and demand. Besides, the IMF and central banks play a significant role in affecting its cost. Low prices result in low production while high prices result in high yield.
Earlier gold was used as money and has been a proportional standard for currency equivalents specific to economic regions. The monetary values of gold remained stable from the commencement of the 19th century to mid 20th century. The major developments in its price started from 1970. The chart below depicts the price of 10 gm gold in rupee terms from 1970 to 2014.
The price of gold went up roughly by 7.5 times from 2000 to 2013. Besides, we have found out the cost doubling every 4 years from the year 2005. This sharp rise was primarily due to the subprime crisis, which started in 2007-08. Also, we have seen gold settling around 29,000 to 32,000 range in the past couple of years with an overall range of 25,000 to 34,000.
Gold acts as a best insurance against any uncertain situations arising in the globe. That’s the reason it acquired the status of a “safe haven” which in simple terms means that it is favored over other assets when the economy looks spoiled. Subsequently the 2008 crisis, investors were scared about putting in any asset class. Property prices and stock markets were down and other investments proved risky. Gold turned out to be the ultimate winner. Its price went up about 2.5 times from 2009 to 2013.
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Gold in 2013
2013 was the toughest year for Gold. The gold prices fell roughly by 29% in dollar terms while just about 4% in rupee terms alone in 2013. Gold prices were not affected in India mainly because of the rupee weakening by approximately 20-25% against the US dollar and also increase in import duty by 10% and other quantitative restrictions by RBI.
Lately, investors have become skeptical about the safe haven status owing to steady gold price for a long time. Gold is a more attractive investment amongst Asians, especially the Indians and Chinese compared to U.S. and European investors. A solid data from US, QE tapering and rate hike expectations has led to decline in demand for gold there. This is the greatest reason for a downfall in prices there.
In India, gold is still looked as a good investment because of its huge demand in the jewelry marketplace. As well, with the new stable government coming to power, we can say a mixture of policy modifications which can affect the metals’ price. A decrease in the import tariff and other limitations can get down the domestic gold prices. Investors will look for global developments and government policy measures more closely in the Budget 2014 coming in a few weeks.
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Financial experts have dictated the benefits of buying paper gold. This is due to differences in prices of gold ETFs and their NAVs. Getting gold from abroad can be a great way to profit. An investor or jeweler can easily earn 13-14% of gold bars and coins and around 8-9% of gold jewelry because of the remainder in the monetary values in India and overseas. There are several exceptions to that rule. There can be certain tax implications for profit and questions about the money used to buy the metal.
The prospect for the industry is bright, but how much of this amazing performance will really translate into improved demand will lie in the capacity of private commercial enterprises to harness the potency of new markets and products anserious investmentd besides on the government’s rules and ordinances. Then due to ever increasing demand of gold from both the investing as well as business purposes, the expectation for this precious metal industry is positive.