Reasons Behind Increasing Gold Prices in India and Globally
Jul 12, 2024
Reasons Behind Increasing Gold Prices in India and Globally
Introduction
Gold's Importance in India:
Gold is a significant part of Indian culture, similar to home ownership in America.
India holds around 20,000 metric tons of gold, second largest consumer globally.
Indian households and temples have more gold than the central banks of the US, Germany, Italy, France, and Russia combined.
Recent Market Trends
Stock Market Milestones:
Indian stock market reached $5 trillion, overtaking Hong Kong.
Sensex and Nifty gave returns of 8.33% and 99.92% respectively.
Gold Prices:
Gold prices hit an all-time high above 70,000 rupees.
Gold prices saw an increase of 16.16% over recent months.
Global Central Banks' Gold Buying Trend
Recent Activity:
Significant gold purchases by countries like India, China, Poland, Singapore, and Czech Republic.
Trend of central banks stacking gold globally.
Key Points Behind Gold's Importance and Recent Price Surge
Historical Context
Post-War US Supremacy:
US capitalized on WWI and WWII by becoming a major supplier, amassing 75% of the world’s monetary gold by 1940.
The Bretton Woods Agreement (1944) pegged US dollar to gold and other countries' currencies to the US dollar, increasing global trust in the US dollar.
US Dollar and Oil Trade
Oil's Role:
Post-WWII, US made a deal with Saudi Arabia to sell oil in US dollars, reinforcing dollar’s global dominance.
Despite the Bretton Woods collapse in 1973, the US dollar remained strong due to its role in oil trade.
Recent Shifts
US Sanctions and Freezing Assets:
Freezing of Russian and Afghan assets in US dollars concerned other countries.
China’s significant gold purchases post-Russia-Ukraine war due to fears of their US assets being frozen.
US Money Printing:
Reckless printing of money by the US (e.g., 2008, 2020, 2021) leading to inflation, reducing the dollar's value.
Gold cannot be printed, maintaining its value.
Consumer Behavior
India and China:
India: Traditional love for gold and increased disposable income.
China: Real estate bubble burst and sluggish stock market pushing consumers to invest in gold.
Investor Sentiment and Gold
Market Correlation:
Gold often has a negative or low correlation with the stock market.
Investors turn to gold during recessions and stock market downturns.
Inflation and Gold
Preservation of Value:
As inflation rises, both central banks and retail investors buy gold to preserve their investment value.
Conclusion
Overall Factors Increasing Gold Prices:
US money printing and the weakening dollar.
Fear of US asset freezes driving countries to gold.
China's real estate and stock market issues.
High consumer demand in India and China.
Shift towards gold as a hedge against inflation.
Investment Advice
Approach:
Avoid impulsive buying/selling based on market trends.
Consider regular investment like an SIP (Systematic Investment Plan) to hedge against market volatility.
Final Note:
Slow and regular investment is advised for long-term stability.