Dr Ashwani Mahajan
Normally in the western countries, there is hardly any culture of saving. People in the west believe in spending more than their incomes. Assets like houses, cars and other consumer durables are purchased on credit and repayment is made by EMIs. India has a deep-rooted culture of saving. We do invest in housing and other consumer durables; however gold is equally preferred investment. Gold is believed to be an insurance against bad times. Similar kind of liking for gold exists in some other Asian countries as well, but western people are not much fond of gold. Therefore, gold always shines in India; though it may glitter in western world occasionally. Perhaps it is this psyche of Indian people, which inspires people to rush for gold (ornaments and pure gold both). Gold has always been an item of attraction in India. Male or female, all have a lust for gold. ‘Stridhan’ has an important place in the Indian social system and culture. Ornaments and money with females is generally called ‘Stridhan’. If due to any reason marriage breaks, Stridhan goes to the bride unconditionally. Ornaments have special importance in marriages. If the income grows in a family, first investment would go into gold. As gold has always been a preferred investment, India has a large holding of gold. However, it is difficult to measure exactly the stock of gold in the country, rough measures range between 10,000 to 40,000 tonnes. If we look at the treasure found in Padmanabhan temple in Tamilnadu, and include that and such other treasures in various temples, stock of gold would exceed any such measure. Therefore, it is believed generally, that available measures tend to underestimate stock of gold in the country. There is common saying that India has more gold than the rest of the world.
In the last few weeks, price of gold was coming down. Reason stated for this trend was the decision of the Cyprus (a country in the Europe) Government to sell its gold stock due to payment crisis faced by Cyprus. Global financial institution and European Central Bank has imposed a condition that Cyprus has to raise money through its own resources, before taking loans from these institutions. Because of this decision of Cyprus, supply of gold has suddenly increased, causing gold prices to decline abruptly. Generally, when price of commodity is declining, people start believing that it may decline even more and they postpone their purchase. However, when the price is rising people feel that it may go up further and they run to purchase that commodity causing its price to go up further.
Therefore, when in the last couple of weeks price of gold nosedived, sheen of the gold was fading in the rest of the world and its demand was going down everywhere, except India. In India it was the period of run for gold. Jewellers reported that they sold off all their stocks in these two weeks, as people purchased huge amount of gold ornaments, taking advantage of the low price. It is notable that is the last few years; price of gold has been rising fast. Price of gold, which was $445 per ounce (28.35 grams) in 2005, is international markets, went up to $1702 per once in 2011. Rising prices kept the investors away from the gold, as they were not finding it to be an attractive investment any more. Demand for gold, which had reached 3281 tonnes in 2000, declined to 2503 tonnes in 2009, before rising to 3488 in 2011. India also contributed to this decline in demand, and gold demand in India declined from 855 to 579 tonnes during this period. However, for India this decline was short lived. This is also a fact that demand for gold for ornaments has never declined (barring exceptions). Even rising prices of gold could not discourage people to purchase gold for ornaments. Demand for gold for ornament which was 442 tonnes in 2009, increased to 618 tonnes in 2011.
Loot Money Too was Invested in Gold
In 2008-09, total value of gold imported into India was $20.7 billion, which increased to $28.6 billion, $40.5 billion and $56.3 billion in 2009-10, 2010-11 and 2011-12. Despite rising prices of gold, this rush for import of gold was surprising everybody. However, in last three years, increase in gold import has been mainly to meet the demand for pure gold. This is indicated by the fact that in quantitative terms, demand for gold bars and biscuits increased from 136 tonnes, 2009 to 368 tonnes in 2011, before declining to 312 tonnes in 2012.
It is believe that demand for gold bars and biscuits come from the large investors. This is also an open secret that one can purchase any amount of gold in the market by paying cash. Although going by law of demand, the demand for gold would have declined due to increase in price of gold in international market, increase in demand for gold raised many eyebrows. However, the fact is that the money looted through frauds was going into purchase of gold, apart from purchase of property. In addition, in this process price of property as well as gold was increasing rapidly. Increasing demand for gold in India was making gold prices go up internationally.
Though demand for gold has consistently been at a high level, very negligible quantum of gold is produced in India. India has always been depended on import of gold for its requirements. Whenever a country is importing a large proportion of a commodity from international markets, it not only commands huge bargaining power, it can even play with international prices. It is unfortunate that Government of India has made any strategy for the same and alter international price of gold in its favour. If history is any guide, Indians have always been purchasing gold at prices determined by international (Landon etc.) markets. In view of the fact that nearly 25 to 30 percent demand for gold arising from India, Government of India must make strategy in this direction.
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