The price of gold is influenced by a number of considerations and the weight assigned to each factor varies over time.
The major price making factors are speculative demand, government activities with respect to gold, industrial demand and conditions affecting the production and movement of gold. Speculative demand is influenced by the feat of inflation and the hope that gold will maintain its purchasing power better than currency during periods of currency instability. Industrial demand is affected by the changes in the level of business activity.
Government activities with regard to gold trading depends partly on changes in the Balance-of-Paymentpositions of major industrial countries. Political crisis and war threat favour higher gold prices. Additional market factors are the strength of the US dollar compared to other major foreign currencies, the degree of apparent success of US government efforts to curb inflation and changes at the price "fixings" on the London Gold Market.
Increased purchases of South African Krugerrands and other bullion coins by the investorsThe sell or the bearish factor face exactly the opposite of the above.Jewellery is the most important industrial use of gold, accounting for 70-75 per cent of estimated world consumption. Other industrial uses include electronic components, coins, medallions, medals and dentistry. Europe is the world's largest fabricator of gold. The official gold holding in the US are the largest known in the world although, official holdings in the West Germany and France are significant.
Indian context: In India, gold is an obsession which is deep-rooted in the country's mythology, religious rites and psyche. Indians' obsession with gold is pushing up its demand because Indians acquire gold to mark every occasion -- from birth to death. Gold is bought when a child is born and at the end, a grain of gold is put in the mouth of a dead person.
Numerous festivals, weddings and birth occasions provideperpetual demand for gold which the country does not produce.
Gold is offered in worship and widely given as gift. It is a symbol of status and security in times of strife. Despite the fact that 40 per cent of its 900 million people live below the poverty line, the average per capita income is just $79 and the country is burdened with $95 billion worth external debt, India has emerged as the world's largest consumer of gold.The London-based producers' organisation World Gold Council (WGC) has predicted that key gold consuming countries including India will always sustain demand.
According to WGC's India officials, the country's gold consumption in calendar year 1997 was 673 tonne, the highest in the world. At this point it is reasonable to say that the consumption of gold in the country will reach 1000 tonne by the year 2000 AD. The statistics collected from various bullion associations reveal the number of Indian marriages add up to 10 million a year, with an average 50 grammes of gold bought for eachwedding.
This itself works out to 500 tonne a year. Added to this is the demand from other occasions and industrial use. Data brings to light the fact that Indians hold nearly 9000 tonne of gold stock -- most of it family heir looms, dowry items and for other investment purposes. During turbulent time it is this gold that comes to their aid. Indian love their gold and are hesitant to part with it.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
