A diamond is the most precious gem, a girl’s best friend, and whatever else the advertisements say. But have you tried to sell one, asks K Saldanha
The Forbes survey of 13,000 women and 1,000 men from five countries in February 2013 on the reasons for their diamond craze found that Indian respondents professed more love for diamond jewellery than any other luxury gift, including...
Gold and silver prices have crashed all over the world. This has confounded those who believed the endless allure of these metals, because pop-economists told them that global monetary easing is good for gold and silver. Indian savers will also be traumatised by the impact on gold loan companies and gold ETFs
On Friday it was a sharp drop. By Monday afternoon it has turned into an avalanche. Gold price crashed by as much by as 11.69% and silver prices by as much 6% on a single day on Monday, stunning those who have been led by pop-economists to believe that gold and silver prices are headed higher because of the endless injection of cash by the central banks. Gold collapsed to Rs26,250 per 10 grams on the MCX at its low today, to touch its lowest level in 15 months. The fall was 6% over Saturday’s close. Silver crashed by over 11% to Rs43,525 per kilogram on MCX. From a high of Rs27,925 on 13th April, gold has crashed by 11.7% and silver has slumped by as much as 17% from its high of Rs52,447 on 13th April. The daily charts of gold and silver show the extent of the rout. The intraday charts of the two metals show utter panic selling today.
What is going on? Gold has been always sought as an alternate investment option. And over the past few years the metal had touched new highs and stayed elevated. It is the only asset class in living memory that has gone up every year in the last decade. This was unsustainable.
The crash in the bullion market has come as a shock to investors who thought the metal as a hedge against inflation or even had the impression that gold prices would never fall, going by the rally the metal has witnessed in the last 12 years. The price of gold was substantially driven by speculation and now the sentiment for the metal has gone down, added with further rumours and speculation which has led to panic selling of the yellow metal.
Specifically about today’s panic selling, there were rumours that some central banks (Cyprus) were selling gold. The other explanation is that since the economic catastrophe that gold bugs have been expecting have not happened, there is no need to hold gold as a hedge.
What fuelled the decline in gold prices further was the Shanghai Gold Exchange announcing that following the tumbling precious metal prices and to limit down drop in early trading, it may raise trading margins for its gold and silver forward contracts. The exchange announced that should prices not recover by the end of the trading day (which they didn't), trading margins for the gold forward contract will be raised to 12%, while margins for the silver forward contract will be hiked to 15%, the exchange said in a statement on its website.
How will this affect Indian savers? Those who have held gold for use should not be perturbed. Those who have bought gold as an investment or speculation would now ask around about the ‘fundamentals’ of gold. Meanwhile, it is bad news for the two new products/businesses that came up in the up in the past few years riding on the enormous gold rally: gold loan companies sprouting and mutual funds selling gold exchange-traded funds (ETFs). Moneylife in the past has argued that the business model of gold loan companies is flawed. Not surprisingly, the shares prices of these companies have crashed even further. Mutual funds have pushed gold ETFs hard, exploiting the Indian belief that gold always goes up. They would be hard put to justify the severe underperformance of ETFs over the past two years.
The sharp decline in fund raising activities came against the backdrop of uncertain economic conditions and slowing domestic growth
Indian companies seem to be losing their appetite for foreign funds as they mopped up just $2.34 billion from overseas markets in February, nearly one-third lower than the amount mopped up in the previous month.
The sharp decline in fund raising activities came against the backdrop of uncertain economic conditions and slowing domestic growth.
In January, India Inc raised $3.51 billion through external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs).
Of the total 66 companies which raised money from overseas market during February, 58 firms raised over $1 billion through the automatic route that does not require approval from the Reserve Bank of (RBI) India or the government, a RBI data showed.
Besides, eight companies raised around $1.26 billion through ECBs under the approval route.
The country’s largest private sector company Reliance Industries raised $800 million to finance its rupee expenditure, while Power Finance Corporation mopped up $250 million for on-lending or sub-lending.
State-owned NTPC raised $250 million for financing power projects, while IDFC garnered $100 million for sub-lending.
Besides, Gitanjali Gems raised $200 million by way of FCCBs for its new projects.
Most of the developed world, especially the 17-nation Eurozone combine, continues to grapple with debt crisis. The gloomy scenario has forced many of these developed countries to embrace easy money (low interest rate) policy, which in turn is considered to be a key factor in fuelling high inflationary trends in emerging markets, including India.
To tackle rising inflation, some of the central banks in emerging economies are adopting high interest rate regime that is also making funding costlier compared to the developed world.