Will the Gold Price Increase Further?
Generally, in India during non-festive seasons the gold will not see a hike in its price, but this time the gold rate has touched the height leaving everyone in surprise. It was expected about Rs. 2600 hike but now it is being selling at a price of Rs. 2,920 per gram. Since there are festivals lined up before Christmas and New Year there is fear of increase in the gold price further before 2013 and after. What is the reason for the hike in gold price and will it still increase further?
Banks Buying and Stocking the Gold
Similar to individuals that buy and save gold as investment, the Central Banks of all the countries are buying and stocking gold for their financial safety. Most of the Central Banks of countries across the world have started to stock Gold as a security in the recession-hit scenario in most of the countries. In the first quarter of this year the amount of gold purchased by the central banks are 158 ton. World Gold Council has announced that this amount is more than the gold purchased in the second quarter of 2009.
In the second quarter of this year, out of the total 990 tonnes of gold sold, 16% was bought by Central Banks itself. In the year 2009, Indian Reserve Bank has bought about 200 tonnes of gold with an investment of Rs. 31490 crores. This, as far as situation of August this year, RBI is having about 558 tonnes of gold. On the list of Central Banks that stocks gold, India is in the 11th place. United States stands first by having purchased and having stock of gold for 8133 tonnes.
Increase in the Demand for Gold
Investors have increased their investments in gold during the second quarter of this year due to European countries issue and deteriorating situation of global economy. Among other western countries the America’s economy status has just started to recover. However, since the European countries’ have scarred the investors which turned them to increase their
But in India, the situation is different. In the beginning of this year, there were some issues started in the gold sales. The demands have started to fall due to the tax increment on imports in the budget, strikes of the gold sellers, raise of dollar value, etc.
Further – since the rupee value started to fall, it had become very tough and expensive to buy gold in India. Due to all these reasons the demand for gold have considerably reduced during the first quarter of this year. However, there are festivals queuing up next-to-next which assumes a hike in the demand for gold during the forthcoming months. October and November are months of harvesting which will also increase the demand for gold from villages as expected.
The important reason for the increase in gold price is though the demand for gold keeps increasing the production of gold is decreasing. The production of gold has been decreasing in the last 8 to 10 years. Recently, there have been no new gold mines were found. There have been decrease in production of gold by about 5 tonnes in South Africa who is the largest producer of gold. Moreover, the expenditure of mining the gold has increased by 22% per ounce during the last one year.
Though there are multiple reasons for the hike in gold’s price, the question here is, will the gold rate increase further?
The important reason for increasing price of gold for now is the talks started on Q.E.3 (printing and releasing new currencies) by the America’s Federal Bank. The dollar rates will fall if America does so. To compensate the loss that might arise due to this, investors have started their investments in gold. Moreover, the increasing price of crude oil is another reason for the hike in gold price.
A few months earlier, there were talks that the gold price will not raise more and will only come down. The reality is that these types of assumptions will come whenever the price is high. When the price is stable, with no other choice people will come forward to buy gold and this is why the price increases again. The investors mindset is the same during the last 10 years of time.
As festive season is lining up there will be further hike in gold price but it won’t be a drastic change but just an additional demand of 250 – 300 tonnes. At the same time, globally, there will be raise of investment in ETF.
Putting everything together, for now all the possibilities are there for further more hike in the price of gold. If that happens, there is a possibility of 10 gram 24 karat gold to sell for Rs. 32,000. In case if it comes down it might come up to Rs. 28,000. Finally, the trade will be between Rs. 28,000 to Rs. 32,000.