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2. Inflation
Inflation is the discussed topic of every Indian Household. From rising price of gas to gold,
everything is falling hard on the shoulders of Indian men and women. Taking into account the
trend of price rise gold in the past years, it is quite shocking to note that in the last 33 years,
gold rose 32 times to reach 32,000 per 10 grams on sep 2012.
Looking at the current rate of inflation which is 7.18 percent, may also push the price of
yellow metal in the near future. But there is also a positive aspect of Inflation, such as if you
invest in gold today, after 20 to 30 years the bullion will definitely return you much more
than the money you invested.
Gold is produced from mines located in the entire six continents except Antarctica, where
mining is banned. The last five years records show an averaged approximately supply of gold
i.e. 2,602.2 tonnes per year from gold mines. This stability of production is primarily
resulting from the fact that when new mines were discovered, theyre mostly used for
replacing the existing mines production, instead of expanding the current global production
levels.
However, this inelastic in production of gold, often fails to meet the rising demand for bullion
in the world market. So to keep the demand under control, trader may increase the gold price
in 2013.
5. Central Bank
Central bank of every nation plays a key role in monitoring the price of gold. If the central
bank provides a lower rate of interest on deposits, the demand for gold increases which also
pushes up its price. As the individuals are discouraged by the lower interest rates of paper
currency; they flip towards the golden metallic as it has potential for continued price
appreciation, making it a good prevaricate towards inflation.
But if this year central bank decides to offer higher rates of interest, the gold price will fall as
this positive rate of interest will compensate for the decline in the value of paper money via
inflation.
Indias current account deficit (CAD) touched a record high of $ 32.6bn or 6.7% of gross
domestic product for the quarter to December 2012. This deficit occurred because more
money was paid out of India than brought into the country.If a country primarily imports
more than it exports, it runs a current account deficit.
The Reserve Bank of India governor, D Subbarao said last month that the sustainable CAD
for India is 2.5% of GDP. Finance minister, P Chidambaram has said that such a high current
deficit
was
worrying.
This has raised concerns over the impact on the economy.
Here are pointers that could explain the situation:
export growth. Indias oil imports rose despite an overall economic slowdown. India
also continued to import gold as demand stayed high. This was despite the additional
duties imposed on import of gold.
No signs of exports growth: Indias overall trade deficit stood at $ 59.6bn during the
quarter to December 2012. This is the excess value of imports over exports. Indias
exports fell marginally due to an overall slowdown in demand for goods and services
overseas. With overall slowdown in the global economy, there are few signs of a sharp
surge in exports
Impact on the Rupee: A high current account deficit puts pressure on the value of
the rupee. However, the Indian rupee has not witnessed a sharp fall so far. This is due
to strong flows from foreign institutional investors into equity markets as well as
foreign direct investment by companies. This largely finances the current account
deficit. The RBI also ensures that the rupee does not fall sharply, as this could
increase the inflation in the economy. It conducts periodic intervention in the foreign
exchange markets by selling foreign currency and buying the rupee.