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Gold prices and equity markets to be affected by General elections says study

Sunday, 2 March 2014 - 8:21pm IST | Agency: PTI
Outcome of general election due in April-May with prospects of a stable new government would influence gold prices apart from equity markets, a study said.

Outcome of general election due in April-May with prospects of a stable new government would influence gold prices apart from equity markets, a study said. 

"Gold prices in India may increase beyond Rs 32,000 per 10 grams in the coming few months in case the voters throw up a highly fractured mandate leading to an unstable government at the centre," industry body Assocham said in a study. 

On the other hand, in case India gets a decisive government after elections even within a coalition framework, the investor bias will return towards equity and real estate and the gold may lose in the bargain of portfolio shuffling. 

In its study 'Golden Connect of Indian Elections', the industry body said at the moment, three important factors are driving the global gold market. 

"Concerns over Chinese economy, uncertainty over the pace of the US economic recovery and the anxiety around the Indian general election. India and China are competing with each other for retaining the slot of being the number one consumer of the yellow metal. 

"The demand in these two markets is going to increase should the two economies witness political or economic uncertainties," says the study. 

It said the trend of the investors is shifting again to gold as a safe haven asset as prices have risen over 10% so far this year. 

"In the case of a stable government, the sensex will zoom and the overall investor confidence about economic activities such as real estate, finance, consumer goods, two-wheelers and passenger cars will pick up immediately." 

This will see money moving away from gold which can then see further easing trend. However, reverse trend will be seen should there is a highly fractured mandate, it said. 

"While the global factors will certainly weigh on gold prices, the Indian market as a consumer of the yellow metal and for the equities would be surely affected by the unfolding developments," Assocham secretary general D S Rawat said. 

He said the yellow metal may still see increase in prices even if there is a stable government in India, if situation in Chinese economy worsens and the US economy does not pick up. 

In that case too, global money will find haven in yellow metal, but for India alternate avenues for investment other than the gold will be clear, he added. 

Global spot gold prices are hovering between $1,330- 1,345 per ounce, drop of about 29% in 2013. But, the trend may again look positive, it said. 

"...although there is an opinion which indicates a further drop in the yellow metal right to $1,000 an ounce." 

"Whatever is the case, India would matter since even despite severe restrictions and imposition of customs duty of 10%, the imports would exceed 500 tonne this year. After a fall in the previous few months, reports indicate that gold imports rose again to 38 tonne in January," Assocham said. 


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