Factors effecting Gold price in 2011

Let us look at some of the factors affecting prices of Gold in India:

1. Gold Mining: The quantity of gold mined in a year will directly affect its price by the simple application of supply and demand mechanics. 2008 and 2009 saw a decline in gold production and it again picked up in 2010. But the production is still less than the 2006 production. The production number in 2011 is not out but doesn't seems very encouraging. Grasberg mine, Indonesia facing two strikes this year, the second of which is still unresolved.
2. Currency Fluctuations – Gold is traded all over the world, hence its price is maintained in USD. The recent USD prices have been fluctuating as it has its bearing on gold price. The US has seen major turmoil in its economy and this has affected the USD adversely. It is not expected to stabilize in the near future although it looks to strengthen a little on good job numbers.
3. Global Scenario – The current global economy is in doldrums. Europe is still clouded with uncertainty, US is still not stabilizing, China is not as strong as it was a year ago and India is also reflecting the unrest. This led to gold acting as a safe haven.
4. Inflation and Interest rates – With inflation on the rise and RBI hiking interest rates frequently, gold prices have become unstable. Rising inflation to increase in gold prices while rising interest rates lead to a fall in gold prices. The gold has still risen as the effect of inflation has been substantial as compared to interest rates.
5. Weak Financial markets – Gold is inversely related to stocks, bonds and real estate. The stock market has been showing volatile behaviour and this has again reflected in gold prices. Gold is still preferred as the others are not as safe as investments as gold.
6. Growing middle class - A factor unique to India is the growing middle class. This has also led to an increase in demand of gold thus leading to increasing gold prices.

With the current economic scenario gold will continue to remain a preferred investment option. The only word of caution to investors would be that gold is heading towards a bubble and thus needs to be handled with care.

Next: Gold demand trend in Q2, 2011

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Gold Price in India - Diwali effect

India is waiting for its most celebrated festival of the year i.e. Diwali. Over last many years, we have seen that Diwali bring steep increase in Gold price. There is Saying that Gold makes the Indian economy go round during the festive season won’t be too much of a stretch. Since time immemorial gold has been the choice of investment for Indians; Diwali season is just one of the biggest excuses to buy it. Unfortunately the recent economic scenario has made it impossible for everyone to afford Gold. It has risen more than INR 1,000/GM since last year. In last 60 days, gold price is moving between INR 2500/GM to INR 2800. In this uncertain economic time, Gold is really the metal for the pallet?

Let us look at why Gold has been such a favourite among the buyers. Buyers can roughly be classified into two categories:

1. People looking at Gold as a family heirloom – Every Indian family at one point or the other has bought gold, not because they like it or because they think it makes a good investment option, but purely because it is an heirloom that can be passed down to the coming generations.
2. People looking at Gold as an investment – The prices of gold over a period of time generally tend to move up. Especially in a country like India where gold is bought keeping the long term perspective in mind, it becomes even more lucrative.

For the first category, Diwali will be a big sale season (irrespective of the prices) as the amount bought is usually smaller compared to that bought by investors.

For the second category, the question that begs to be asked is, will the gold prices stabilize or will it go down further before beginning its climb again. At the end of the day, its climb is inevitable.

Next Page: Let us look at some of the factors affecting prices of Gold in India.

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Gold Demand Stats and Data Q2, 2011

Previous Page - Gold Demand Trend

Here are some interesting status and data for Gold Demand.

• On count of volume, global gold demand in the second quarter of 2011 stood at 919.8 tonne in comparison to 1107 tonne in Q2 2010. Demand has reduced by 17% from 
• In terms of value, gold demand grew by 5%. In Q2, 2010 value of Gold purchase was USD 42.64 bn and now it is USD 44.5 bn. year-on-year reaching US$44.53 bn up from US$42.6bn in the second quarter of 2010. 
• Average gold price rose by 26% on quarterly basis. This quarter gold price has reached USD 1506.13
• Q2 2010 has seen unprecedented demand of 574.2 tonne. Q2 2011, the demand is reduced to 359.4 tonne which is 37% lower on year on year basis.
• ETFs witnessed solid net inflows of almost 51.7 tonne during the second quarter of 2011, which compared well to the previous 12 quarters (excluding two record peaks) where ETF inflows have averaged 41.4 tonne.
• Investment in gold bars & coins reached 307.7 tonne in Q2 2011 with rise of 9% on year on year basis again 282.6 tonne in Q2 2011.
• Jewellery demand in the Q2 2011 was 442.5 tonne. It is 6% more on year on year basis.
• India, China & Turkey are accounted for nearly 60% demand of global jewellery demand in Q2 2011
• The highlighted dip in case of Gold has come from Gold Supply. It has declined by 4 % in 2010 and stood at 1058.7 tonne in Q2, 2011. The main reason for dip is net purchasing by Central banks
• Central banks’ purchase has increased 4 times in comparison to Q2 2010.

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Gold Demand Trend Q2, 2011

Gold has turned out to be investor's favorite in this crunch time. Q2 2011 shows unprecedented demand of Gold reaching to 919.8 tonnes. But surprising fact is more than half of the Gold demand comes from only two countries i.e. China and India. Two emerging economies is purchasing Gold more than rest of the world. 


Gold Demand Trend report for Q2, 2011 shows that Gold will continue to be in demand for next half year in 2011. Here are the key reasons.

• Higher gold price has failed to cut Gold demand in India and China. It grew by 38 % and 25 % respectively during Q2, 2011 on year on year basis. There is no sign of slowing down demand from India and China.
• With European debt crisis, US Debt downgrade and higher inflation, Gold is turning out ot be a favorite investment in coming year.
• With net purchase over 69 tone in Q2 2011, Central banks will remain one of the top purchasers of Gold to keep their reserves diversified. 

Marcus Grubb, Managing Director, Investment at the World Gold Council said “The strength of demand in India and China, coupled with an overall drop in recycling activity this quarter, demonstrates that consumers have adjusted to the current price environment and expect the upward price trend to continue. In addition, ongoing macro economic uncertainty, the continued sovereign debt crisis and widespread inflationary pressures, will result in gold demand remaining strong.”



Next Page: Gold Demand Statistics Q2, 2011

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