Fall in Gold Prices: Implication for Indian and World Economy

Fall in Gold Prices: Implication for Indian and World EconomyQuestion: Gold has slumped to a 5 year low recently in India though a rally pushed it back. What does a fall in gold prices imply for India? Enumerate the recent trends as well.

Indian Economy

- India consumes around 800-900 tonnes of metal on a yearly basis and is dependent on imports for meeting the complete demand.

- Gold and oil are a large part of India’s imports as far as value is concerned

- It also contributes to the trade deficit of the country

- Strengthening dollar could nullify the impact of falling gold prices however

- GoI has to aim for coaxing idle gold into banks and earn interest

- Gold monetisation scheme may receive a boost in this context

World Economy

- Yellow metal has dominated the international market scene all of last week

- Gold fell to a 5-year low and a late rally pushed prices back to SD 1100 an ounce

- Price slid to the lowest since March 2009 to USD 1088.05 per ounce

- Price movement is set for an uncertain phase now

- A chronic oversupply situation, weak demand, the Greek crisis and the Chinese market fall have led to a fall in oil prices

- Oil price could slow down the tightening policy of the FED as well

- Sustained recovery in gold prices is inversely linked to growth of the most dominant economy in the world, the US

Facts and Stats

- India is a leading market for gold jewellery

- China has the world’s fastest growing market for gold

- World Gold Council is the apex gold development organisation in the world with over 18 member nations that have mining operations in over 40 countries