1273605,Priya.F2,Q-25,

GOLD  INVESTMENTS BY INDIANS ? IS IT GOOD or BAD ?

Introduction:-

While many commodities are affected by more than just supply and demand, the price of gold drifts farthest from that balance. For example, gold has played a role in currency going back to the earliest recorded civilizations. Today is no different, with governments and central banks holding gold as a store of value to support their currencies. Speculators spend a lot of time thinking about the role of these agencies and their manipulation of the price of gold.Of course, gold is also affected by supply and demand. It is estimated the Indian public holds more than 13,000 tonnes of gold. As the economies in India, China, and other countries continue to develop, the demand for gold jewelry will continue to increase. Gold is also used in electronics. While the majority of gold produced is used in jewelry, it is estimated that up to 20% of production goes into the manufacture of electronics.

Discusssion:-

Initially it seems as if today’s long term bestest and safest investment is gold. Looking back to past few years price of gold has always an increasing trend. Many investors have earned a lot as well by investing in gold. Gold Investment changed life of many. But we’ll found something else when we deeply study the situation.

Gold Investment can be viewed from two different point of view.

One – From point of view of Individual Investor

Second – Economy point of view

We are not unknown from the benefits that individual investors get from Gold investment.

I am much concerned about another point of view. Lets pay attention to that point more importantly…..

Gold prices are highly affected by Demand supply rule, Dollar rate and Inflation rate.

Gold’s demand increased in past few years becoz gold sellers wanted that. To earn more profit they stored the gold, hence price increased. Hence there is an artificial inflation in gold’s rate. Gold rates are highly fluctuating with market conditions as well as supply demand of the same. “Gold is going up because people are buying it, and people are buying it because it’s going up,” said Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill., and a longtime gold trader, highlighting just how tough it can be to figure out why gold goes up or down in a given trading period.

Gold price are affected by Dollar rates also. Gold has direct relationship with dollars. To enjoy its availability gold needs to be Imported from outside country. To buy the same we need to pay dollars, i.e. for which our Country’s FOREX Reserve is utilized. In such a situation If dollars rate remain strong we need to pay more, hence price increases of gold as well.

Conclusion :-

Studies have shown major portion of Forex reserve is used for purchasing GOLD from outside. Where other requirements of economy are sacrificed for buying gold as people demands more and more gold for their personal benefits. Foreign exchange reserve kept for purchasing things from outside are mainly used for gold now, where other important requirement like metals, consumables and other things are very much less in percentage. Where for growth of economy import of such other things are more requirable than gold.

No production capacity – Another bad impact of buying gold is that it has no productive value, it is just store of value. Normally used and stored in form of Jewellery, where percentage of Industrial use is very low. Unlike other metals Gold is hardly used in Industrial work. Hence no production capacity of gold.

Studies of ASSOCHAM has shown that Demand for gold is comparatively more in India than in China and America, where GDP is very low

Hence we see Demand of Gold is more, where forex reserve is comparatively very less. More money is used for buying gold, rather it shall be used for Infrastructural and other developments of our Country. Politicians should think on it and should make changes in policies, so that more money is used for productive work rather using them for unproductive things.

Also I believe Gold prices are expected to be lower down in near future as people are not having capacity to spend unbelievable high prices for anything which is not productive.

Being a responsible citizen we must think on this important issue.