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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