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Why gold prices in rupee have soared to new highs

Gold is one of the five largest imported items into India. ET gives the lowdown on why prices have run up in rupee terms

, ET Bureau|
Aug 12, 2019, 11.22 AM IST
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Commodity Summary
MCX

GOLD
Why have the prices risen though dollar rate is less than its all-time high of $1918 an ounce of August 2011?

The rupee depreciated from 45 levels to the USD in 2011 to around 70.85 currently even as gold in dollars jumped by $100 an ounce in the past month to close to $1,500. This has caused 99.5% purity gold to log in a (closing) rate of Rs 37,196 per 10 gm (ex GST) according to India Bullion & Jewellers Association polled rates on Friday.

Also, the government raised the import duty on gold by 2.5% to 12.5% on July 5. This has also partly contributed to the rise.

How much gold does India import each year?
India imported on average 768.6 tonnes every year from 2014-18. The depreciation of the rupee and rise in dollar gold therefore make gold costlier for consumers here.

Why so high local demand?
Traditionally, it has been a store of value and is easily fungible in times of distress. Maximum sales happen during festive and marriage seasons, commencing in September-October.

Are there other forms of investing in gold apart from the physical demand for jewellery ?
Yes, bars and coins are available for purchase from authorised banks and agencies like MMTC-Pamp . The government has also launched sovereign gold bonds, which offer stipulated interest and redemption of bonds in gold or rupee, depending on the holding period. Gold ETFs available on platforms like NSE also allow investors to diversify, and commodity exchanges like MCX offer derivatives on bullion. NBFCs like Muthooth also offer loans against gold.

Will the price hitting Rs 40,000 /10 gm hurt demand?
Demand in June -August is typically slack as it includes sowing season and is also considered inauspicious for marriages. However, for festivals and marriages, gold is a must, so buying will commence from September -October, albeit grammage might be hit because of the sudden spikes in prices. However, at such times, people exchange old jewellery for new, and pay mostly for making charges.

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