Case on Gold
Do Soaring Price and Mounting Demand in Indian ... Ref. No.: ME0006
Do Soaring Price and Mounting Demand in Indian Gold Market Speak of a Paradox?
Demand for gold is a widespread observable fact across the world. However, the major demand for gold comes from five countries, namely India, Italy, Turkey, US and China. Among these countries, which account for 55% of the total gold demand, India’s share alone comes to around 25%. Cultural and religious traditions involving wearing of jewellery play a major role in influencing Indian gold demand. Around 75% of the world demand for gold is jewellery-based and the rest 25% is investment based. Speaking about India’s fondness for gold, Lord John Maynard Keynes is alleged to have remarked, “India’s gold consumption reflects the ‘ruinous love of a barbaric relic’.”1 In India, there is a huge mismatch between demand for and supply of gold. Hutti Gold Mine Company located in Karnataka is the only company in India, which produces gold by mining and processing the gold ore. It produces around 3 tonnes of gold per year. Another source of supply of gold in India has been coming from recycled jewellery/scrap jewellery. In 2006, it was reported that, “Over the past five years, Indians have recycled an average of 105 tonnes of gold per annum.”2 To meet the bulk of the demand, India imports gold. India imports around “700 tonnes of gold a year”.3 In October 2008, demand for gold increased. While this increase in demand for gold was attributed to the falling gold price from $900 to $712 per oz.4, some were of the view that it is because of the festivity of Diwali5, which requires people to purchase gold ornaments without taking price situation
1
Kannan R. and Dhal Sarat, “India’s demand for gold: some issues for economic development and macroeconomic policy”, http:// findarticles.com/p/articles/mi_m1TSD/is_1_7/ai_n28026379/, June 2008 Dempster Natalie, “The Role of Gold in India”,
Do Soaring Price and Mounting Demand in Indian Gold Market Speak of a Paradox?
Demand for gold is a widespread observable fact across the world. However, the major demand for gold comes from five countries, namely India, Italy, Turkey, US and China. Among these countries, which account for 55% of the total gold demand, India’s share alone comes to around 25%. Cultural and religious traditions involving wearing of jewellery play a major role in influencing Indian gold demand. Around 75% of the world demand for gold is jewellery-based and the rest 25% is investment based. Speaking about India’s fondness for gold, Lord John Maynard Keynes is alleged to have remarked, “India’s gold consumption reflects the ‘ruinous love of a barbaric relic’.”1 In India, there is a huge mismatch between demand for and supply of gold. Hutti Gold Mine Company located in Karnataka is the only company in India, which produces gold by mining and processing the gold ore. It produces around 3 tonnes of gold per year. Another source of supply of gold in India has been coming from recycled jewellery/scrap jewellery. In 2006, it was reported that, “Over the past five years, Indians have recycled an average of 105 tonnes of gold per annum.”2 To meet the bulk of the demand, India imports gold. India imports around “700 tonnes of gold a year”.3 In October 2008, demand for gold increased. While this increase in demand for gold was attributed to the falling gold price from $900 to $712 per oz.4, some were of the view that it is because of the festivity of Diwali5, which requires people to purchase gold ornaments without taking price situation
1
Kannan R. and Dhal Sarat, “India’s demand for gold: some issues for economic development and macroeconomic policy”, http:// findarticles.com/p/articles/mi_m1TSD/is_1_7/ai_n28026379/, June 2008 Dempster Natalie, “The Role of Gold in India”,