Gold rates and the Indian Economy
Gold has a metallic element with melting point at 1064 degree centigrade and boiling point at 2808 degree centigrade.
Gold effects Indian economy because it is a non-productive asset. It does not add to any real value of productive capacity of the economy. Most of the Gold purchased in India gets converted into jewellery or kept in lockers and safe boxes. Those who hold are waiting for it to appreciate so that they earn some income and return on investment or to increase their wealth.
Gold in India is used as a form for tackling inflation and holding because its rarity is a better way
to counter the fluctuations in currency. Gold is the most stable investment which is why every country has a Gold reserve managed by its central bank. Any decision taken by the bank regarding Gold reserves can have impact on Gold rates. Govt. policies can also have a direct or indirect impact
on Gold rates.Gold imports directly effects Current Account Deficit (CAD). Large CAD with respect of GDP makes it riskier for the economy.
Among India's three main imports, Gold is not a necessity like import of crude oil and cooking oil which are the necessities. Rural demand depends upon good monsoon because farmers buy Gold to create assets. On the contrary, deficient monsoon tend farmers to sell Gold to generate funds.
There is a negative relationship between Gold and Interest rates. Rising yields indicate expectation of strong economy. Strong economy rise inflation and Gold is used as a hedge against inflation. When rates rise, fixed income investments increases which gives a fixed return unlike Gold which does not carry such return.
Gold is largely imported and hence if rupee weakens against Dollar, Gold prices will appreciate in rupee terms. So, a depreciating rupee may reduce demand of Gold in the country. As such, change in Rupee - Dollar rates has no impact on Gold rates denominations in Dollars.
Gold effects Indian economy because it is a non-productive asset. It does not add to any real value of productive capacity of the economy. Most of the Gold purchased in India gets converted into jewellery or kept in lockers and safe boxes. Those who hold are waiting for it to appreciate so that they earn some income and return on investment or to increase their wealth.
Gold in India is used as a form for tackling inflation and holding because its rarity is a better way
to counter the fluctuations in currency. Gold is the most stable investment which is why every country has a Gold reserve managed by its central bank. Any decision taken by the bank regarding Gold reserves can have impact on Gold rates. Govt. policies can also have a direct or indirect impact
on Gold rates.Gold imports directly effects Current Account Deficit (CAD). Large CAD with respect of GDP makes it riskier for the economy.
Among India's three main imports, Gold is not a necessity like import of crude oil and cooking oil which are the necessities. Rural demand depends upon good monsoon because farmers buy Gold to create assets. On the contrary, deficient monsoon tend farmers to sell Gold to generate funds.
There is a negative relationship between Gold and Interest rates. Rising yields indicate expectation of strong economy. Strong economy rise inflation and Gold is used as a hedge against inflation. When rates rise, fixed income investments increases which gives a fixed return unlike Gold which does not carry such return.
Gold is largely imported and hence if rupee weakens against Dollar, Gold prices will appreciate in rupee terms. So, a depreciating rupee may reduce demand of Gold in the country. As such, change in Rupee - Dollar rates has no impact on Gold rates denominations in Dollars.
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