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Soaring Gold Price Makes It Uncommon for The Common Man

Gold is forever. It is beautiful, useful, and never wears out. It has been prized over all else, as a store of value that will survive the travails of life and the ravages of time. Every individual, although he may not need the gold, is a potential gold buyer. The yellow metal is being added as wealth, and passed from generation to generation as an object of family treasure. Moreover, gold jewellery is deeply connected with the culture, traditions and religions of India. Traditionally, Indian households see gold jewellery as an investment in their wealth and for their daughters it’s the future fortune. To have this precious metal, is every woman's dream. For an Indian woman, the more jewellery she wears, the more beautiful and complete she feels. But as the gold prices are soaring, the desire of the common man to possess it perhaps needs to be postponed for some time.

Gold has witnessed to a nonstop historic rally. The price of gold hit a 25-year high touching USD 637.30 an ounce this week. The reason mostly is the huge amount of investment being made into precious metals. According to PTI, standard gold (99.5 purity) shot up by Rs 50 per 10 gram higher at Rs 9,345 from Rs 9295 of yesterday (27/04/2006) while pure gold (99.9 purity) also jumped up by similar margin and closed at Rs 9390 per 10 grams against the previous day close of Rs 9340. At the same time, the price of gold in the international market rose by USD 3.68 per ounce and shot up at $637.30 as investors took gold as the safe haven during the time of rampant inflation and global disturbances of many a kinds- political and apolitical. Perhaps, now gold has been golden. Gold is chosen as the best alternative option to invest into by the investors who are worried and quite apprehensive over current market situations. Mostly the fear of raging Inflation, then international conflicts like Iran nuclear row, Venezuela’s challenges to the US, Nigerian violence etc. are some major factors that raise insecurity among the investors. They fear that their other monetary assets will lose value in this process. It is well expected that the gold price will soar when the world economic state is going through such a hard situation.

There are several explanations being pointed out by commodity experts for this bullion rally. The economic rise of China and India is one of the major factors that drive the global inflation to rise incessantly. Another reason is the growing demand of gold in both India and China, which are the big purchasers of gold jewellery. India is the largest gold jewellery consuming country in the world, followed by China and the Middle East. Gold Jewellery consumption in India and China is set to have an impact on the gold price. This will, in turn, cause the price of gold jewellery to rise. According to Star Newspaper in Malaysia, "the climb in the global gold price is driven by strong jewellery sales from the burgeoning middle class in China and India.” .There are some political reasons too, to accelerate the commodity price hike including gold. The nuclear conflict with Iran is another biggest cause that drives the Inflation to be rampant. Few days before, United Nations Security Council set deadline for Iran, the fourth-largest oil producer to suspend the nuclear programme, which has raised concerns worldwide speculating UN sanctions against Iran or a possible military assault against the country. The prolonged violence in Nigeria and the recent Zimbabwean government's announcement that it might take control of foreign-owned mines etc are the other political reasons that creates uncertainty in the state of world economy.

Other experts believe that investors being influenced by the rising price of commodity are doing massive speculative buying, which in turn has driven up the global gold price. They believe that, there are vast walls of money going into all the commodities, and gold and silver are benefiting at present. They justify their explanation by saying that, as the price has risen, it has become easier for investors to buy gold through a slate of new exchange traded and mutual funds that specialize in metals.

The World Gold Council, a trade group for mining companies, estimates that in 2005, the demand for gold as an investment has increased by only 26 per cent and exchange traded funds have increased the buying of metal ( in tonnage) 53 per cent more. And demand for gold used in jewelry, however, increased 5 percent. And it is expected the gold price will touch $800 by the year-end.

There is a demand of 800 tonnes of gold per annum in India for creation of gold jewellery. Of these 800 tonnes, two-thirds is imported. The demand for gold jewellery is growing gradually as the middle class in India continues to grow. According to The Mumbai Mirror, the Demand for gold jewellery, mainly from retail investors, was up 47 per cent in the second quarter of 2005 against the corresponding period of the previous year.

The Wedding Season in India is the main time for gold jewellery buying owing to its importance in the Hindu marriages. Daughters are gifted gold by their parents as a security for their financial future. Throughout India, gold has traditionally accompanied women into their marriages, as it secures their financial status in the in-laws’ family. With marriage season round the corner, the steep hike in gold price has come as big set back for all those gearing up for gold purchases. Though the jewellery manufacturers expect sales to pick up during the marriage season that lasts till June as it is the season when heavy traditional jewellery is bought more in comparison to the light weight and subtle-looking pieces, the steep hike is bound to impact sales. It is likely to keep casual buyers and middle class customers away from jewellery shops for some time.

The increase in the Gold Price is already having an effect on the festival and wedding season in India. Rather than buying new gold jewellery, many people are now choosing to recycle their gold jewelry into new designs for the festival season. According to the World Gold Council, "Recycled gold now accounts for 30 per cent of gold consumption in India". It is also expected that the high gold price will have an effect on the April 30th festival- Akshaya Tritiya in India. It is traditionally a time when Hindus buy gold as they believe valuables bought on that day will bring prosperity.

To lure the customers, many banks in India have loans for purchasing gold jewelry. These loans are generally targeted at the workingwoman between 18 and 55 years of age. That banks are willing to loan on gold jewelry is a reflection of the importance of gold jewelry in an Indian woman's economy and traditions. And for the banks, it is a profitable business during the periods of price hike.

Thanks to some innovative trends in investment, gold-the eternal and largely immobile store of value is now soaring. As gold couldn’t easily be destroyed and difficult to move vast quantities of it, it is just incredibly valuable. At least for now, gold is the place for some of the fastest-moving cash in the world. The experts believe that the trend will continue for quite a long time to come. And soaring price makes the yellow metal to shine more and more. Whatever. Now, the precious metal has become uncommon thing for the common man.

References:

1.Gold price reach 25-year highby Vikas Bajaj, www.nytimes.com, April,06

2.Gold price soars again, http://www.thehindu.com/2006/04/13/stories/2006041316040200.htm

3.Inputs from Press Trust of India (28/04/06) and 4.Inputs of World Gold Council-http://www.gold.org/jewellery/news/article/3869/

Saroj Kumar Pattnaik

The author is working as a Media Researcher with a News Channel, Hyderabad. Can be contacted at: sarojkumar.pattnaik@gmail.com

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