There is good news for the government with gold prices tumbling in international markets to a 15-month low of $1,484 per ounce, dropping almost $80 in a single day and by Friday midnight falling another $20. The reason was that crisis-ridden Cyprus’ central bank sold 12.5 tonnes of gold, which set off a panic, particularly after two other central banks also sold gold. With sentiment down, gold prices may even climb down further to $1,450. Goldman Sachs believes it could fall to $1,390 in a year. This should help tame gold imports to some extent, as some of the imported gold was for investment and speculative purposes.
In India gold prices dropped by `300 on Friday to quote at `27,900 per 10 grams; and by all indications it may drop further in the short term. Gold prices are higher due to the weak rupee, which depreciated 15 per cent since July 2011.
Gold was a safe haven for those who didn’t want to put their money in risky assets, like equities. But the US economy is now showing signs of revival, oil prices are tumbling with the American stockpile of oil increasing, and the US is said to be almost self-sufficient with shale gas, so prices of gold tumbled. Equities too are picking up in the US.
But the Indian story is different, so the government must act quickly to take advantage of the global situation. One estimate claims this country consumes in one day around 12.5 tonnes of gold — the amount the Cyprus central bank sold on Friday! India, China and West Asia remain big consumers of gold. This is an opportune time for the Indian government to act, possibly by setting up a Gold Depository Scheme or something similar. A Reserve Bank working group studying gold and gold loan-related issues had in a January 2013 report expressed concern that high gold imports could have implications for India’s external sector. One saw this in the highest-ever current account deficit of 6.5 per cent in the October-December quarter. It recommended various measures to contain gold demand, noting the government proposed to unfreeze or release part of the gold physically held by mutual funds under gold equity traded funds (ETFs) and enable them to deposit this gold with banks. These are holding around 40 tonnes of gold, and it is expected they should release 20 tonnes as gold loans. It is understood, though, that Sebi is yet to come out with guidelines. It is well known that Indians hoard around 20,000-25,000 tonnes of gold: the government should swiftly come out with schemes to draw out at last 1,500 tonnes of this so there will be no need for imports. Is the government listening?