The country’s central bank had bought 200 metric tonnes of the precious metal in October 2009 as part of its forex management operations
Gold prices touched a new high of $1,594 per ounce on Thursday, on heightened global concerns over the debt-crisis in Europe. This timeless precious metal has gained a fabulous 31% in the past one year and looks like going higher still in the current environment. ($1,594 = Rs70,933)
Gold in India is a big attraction and the country is one of the biggest buyers. But a little known aspect is that the Reserve Bank of India (RBI) has been a huge gainer from this gold price increase.
In October 2009, the country's central bank had purchased 200 metric tonnes of gold from the International Monetary Fund (IMF) for about $7.4 billion. That worked out to about $1,050 an ounce. At the current price, that purchase of such a large quantity of the yellow metal is worth about $11.18 billion (Rs49,750 crore), a gain of $3.78 billion (Rs16,820 crore) or 51% in just 20 months.
The RBI made the purchase under the IMF's limited gold sales programme, as part of its foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two-week period from 19 to 30 October 2009 at market-based prices.
As on 10 June 2011, the RBI's total foreign exchange reserves stand at $310 billion, of which gold accounts for $24.39 billion.
Gold is expected to pierce the $1,600 mark before end-2011. (Read, "Gold survey 2011: The yello halo", Moneylife, 5 May 2011.) Despite talks about gold turning into a bubble, investors' have continued to show keen interest in the previous metal as a hedging instrument. The global financial crisis, set off in the United States, saw a rush for gold over the past couple of years, and now the euro zone debt crisis is seeing investors rushing back into gold again, which is pushing the price up further.
In India, the demand for gold has been strong, particularly for jewellery from a growing middle class that is 64 million strong, and due to a high savings ratio of between 30% and 40% and a strong cultural affinity for gold, according to the World Gold Council (WGC). Steadily increasing income is expected to increase gold purchasing power by about 3% per annum.
India accounts for 32% of global jewellery. Gold jewellery contributed around 75% of total gold demand in the last decade and more than 50% of this buying has been motivated for investment purposes. Indians hold the largest stock of gold in the world, and 18,000 tonnes of this is held by households.
There is a strong demand from China as well. According to the WGC, China produced 340 metric tonnes of gold last year, while consumption was 700 metric tons. This year, the investment demand has skyrocketed more than 120% in the first quarter alone, to nearly 91 tonnes. The total demand for gold in China is up more than 47% over the last year to more than 230 tonnes. The investment demand for gold in China increased by 70% in 2010 year-on-year, according to WGC.
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The Indian market is likely to open on a cautious note despite a positive opening in the Asian pack this morning. On the other hand, the US market closed in the red on Thursday after Federal Reserve chief Ben Bernanke said that the central bank had not envisaged any new bond-buying programme. The SGX Nifty was up 11points at 5,596 against its previous close of 5,585.
On Wednesday we mentioned that the Nifty may rally up to 5,650, which it did yesterday. The Nifty hit an intra-day high of 5,654, before crashing and closing at 5,600, up 14 points. The market is now moving in an indecisive area. Today’s move will help us decide the further direction.
The market opened lower on Thursday on nervousness among investors following the triple bombings in Mumbai last evening. Also, a mixed opening on the Asian bourses, after Moody's Investor Services threatened to downgrade the credit rating of the US, kept investors on the sidelines. The Nifty opened at 5,569, down 16 points, and the Sensex resumed trade 32 points lower at 18,564. The indices touched their intra-day lows in the first 30 minutes, as the Nifty dipped to 5,542 and the Sensex slipped back to 18,449.
Selective buying pushed the indices gradually upwards around noon, but choppiness saw the indices popping in an out of the red a couple of times. Comments from Planning Commission deputy chairman Montek Singh Ahluwalia stating that acts of terror should not impact market sentiment, gave a firm push to the market in noon trade.
The indices touched their intra-day highs a little past 2.30pm, when the Nifty touched 5,654, up 112 points from the day's low, and the Sensex climbed to 18,803, a gain of 354 points from the low point of the day. However, the gains were short-lived, as massive selling took over and dragged the indices into the red in late trading. Nevertheless, the Nifty closed in the green up 14 points at 5,600 and the Sensex added 22 points from its previous close to end at 18,618.
Wall Street closed lower overnight after Fed chief Ben Bernanke said that the country’s central bank had not provided for any new stimulus programme, going back on his statement on Wednesday that had led to gains on that day. A possible revision in US credit rating by Moody’s also weighed on the markets.
Earlier, the Labor Department said that weekly jobless claims applications fell by 22,000 to a seasonally adjusted 405,000, the lowest level in almost three months. Also, US retail sales edged up 0.1% in June, after slipping 0.1% in May, as a rebound in receipts from auto dealers offset the biggest drop in gasoline sales in a year.
Among stocks, Google Inc jumped 11% in after-market trading the world’s largest Internet search engine reported sales and profit that topped analysts’ estimates. JP Morgan advanced 1.8% after the New York-based bank reported its highest half-year profit ever, at almost $11 billion. Marriott International Inc declined 6.6% after forecasting earnings that fell short of estimates.
The Dow fell 54.49 points (0.44%) to close at 12,437.12. The S&P 500 shed 8.85 points (0.67%) to settle at 1,308.87 and the Nasdaq lost 34.25 points (1.22%) to end at 2,762.67.
Markets in Asia were mostly higher in early trade on Friday on bargain hunting after the recent decline. Across the region, the Bank of Korea marginally raised its inflation forecast for this year and cut its economic growth projection, reflecting growing risks for Asia's fourth-largest economy. Chinese stocks were under pressure as Beijing extended home purchase restrictions to more cities.
The Shanghai Composite was up 0.27%, the Hang Seng rose 0.13%, the Jakarta Composite rose 0.28%, the Nikkei 225 gained 0.20%, the Straits Times climbed 0.42% and the Taiwan Weighted advanced 0.61%. On the negative side, the KLSE Composite lost 0.19%.
Back home, after an upbeat start, India’s monsoon slipped into the red this week with the country receiving 3% deficient rains since its onset in June. As per statistics released by the India Meteorological Department (IMD), eight of the 36 sub-divisions had received deficient rainfall in a month when farmers take up sowing in a big way.
For the week ending 13th July, the monsoon rains were 19% below normal but the weather office has presented an outlook of fairly widespread rainfall over many parts of the country barring southeast peninsula for the next five days.
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