Raids by the taxman, the unscrupulous use by some to stash unaccounted wealth in the precious metal, and the cash squeeze with the general public has dimmed gold’s outlook
The government’s demonetization attempt to flush out black money has hit gold trade.
Raids by the taxman, the unscrupulous use by some to stash unaccounted wealth in the precious metal, and the cash squeeze with the general public has dimmed gold’s outlook, say most experts. Though a large part of gold buying is linked to rituals, not many expect the shine to be back soon.
Gold has been India’s favourite obsession for centuries. Often marketed as a hedge against money (or formal monetary system), a store of value, and as an asset to diversify risk, the metal saw a massive spike in premium in grey markets after government overnight banned old Rs 500 and Rs 1,000 notes on November 8. Spot prices, after shooting up at first, have started to dip lower. Gold ETFs and funds are down 3-8% post-demonetization.
Kishore Narne, head - commodities & currencies business, Motilal Oswal Commodities Broker said, “The demand in the so-called grey market has shot up instantly after the announcement of demonetization, and has absorbed a big chunk of metal available in the country, causing a sudden shortage which has lead to a spurt in domestic premiums. The market will adjust itself in the due course of time as fresh imports find their way into the country.” But the demand, in general, will take much longer to return and may take a couple of years again to reach recent highs, he said.
Prices could dip further if the government takes action against gold holdings.
Hareesh V, research head, Geofin Comtrade, says it is very difficult to obstruct such cash inflows into the gold market under the absence of strict rules to tackle all gold transactions in the country.
“It is conservatively estimated that Indian households and institutions are the largest owners of gold and the money invested in the metal is mostly unproductive. So, there are high chances that our finance ministry may impose stringent measures on gold holdings and its transactions,” Hareesh predicts.
Prathamesh Mallya, senior research analyst - commodities & currencies, Angel Broking, expects the overall demand outlook for the metal to remain weak as cash runs dry, especially in rural markets which are key consumers of gold.
“Besides, gold demand is estimated to hit a seven-year low to remain in the range of 650-750 tonne in 2016, according to the World Gold Council… In the medium term, we see a correction in international gold prices heading lower towards $1,100 mark (per ounce) while in the Indian markets, prices will go lower towards Rs 28,000 mark (for 10 grams).”
Global factors, which often determine the fortunes of domestic gold price, also do not look great for gold.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Gold")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}