As the gold price takes a rollercoaster ride, the investor confidence continues to reel from the yellow metal’s spectacular fall and outflows from exchange-traded funds.
While the physical demand for household consumption of gold bars and coins surged after prices plunged to their weakest in more than two years on April 16, investors have turned wary of putting more money in gold.
For India, Asia’s third largest economy, the crash in gold prices and more benign crude oil prices will not only dampen inflation but also reduce its twin deficits. Crude and gold imports contribute nearly 45 per cent to India’s total import bill. According to experts, the fall will help the country deal with widening current account deficit, which is a major concern for the policymakers. Given that these two commodities account for large outflow foreign exchange, lower prices will also prevent the rupee from depreciating.
Bullion experts predict that a slowdown in investment demand is probably going to drive domestic prices further down. While, it is quite tough to really crystal-gaze the direction of gold-prices, it appears that the downside risk to prices is far greater than an upside risk.
A popular view floating in the market is that the possibility of some countries including some European ones selling gold to tide over financial difficulties cannot be ruled out. Further, outflows from physically-backed exchange traded funds can put additional downward pressure on prices.
According to investment experts, with gold beginning to move in step with other commodity investments, its safe haven status is taking a beating. It is possible that the investors are shifting focus from yellow metal to the greenback. The US dollar index is already up three per cent for the year.
However, Indian’s greed for gold remains insatiable, as small buyers continue to make a beeline for jewellery stores. It is time policymakers thought of lucrative investment instruments which offered better cash return or perhaps some gold in lieu of investments made for a certain period.
Investing in gold is after all locking up nation’s liquidity into a small bar or coin. It is time we woke up to the fact that process and journey are far more important than a “solid gold” goal and that manufacturing and industry are far more important than gloating over trading margins.
It is a common knowledge that gold can be melted and recast into things that are merely ornamental but nothing that is fruitful as such. Gold is certainly not investment. Gold has almost lost its Midas touch and merely an assurance of access to “anytime liquidity” does not really help in moving the wheel of economy.