Human beings are fascinated by the yellow metal for decades as an ornament as well as an investment. Except for recent trends, people have not been buying gold as an exclusive investment. Conventionally, gold ornaments bought at various points of time put together were viewed as an additional investment, though the prime mode of investment for an average Indian is investment in immovable properties.The daily variations in the world economy directly affect the price of gold. The economic regression results in increase in price of gold and economic aggression results in decrease in gold price.To get over the economic recession, the United States has declared various revival and financial assistance packages. To find money for these packages, dollar currency is printed in large quantities which resulted in decrease in the exchange rate of dollar as compared to other currencies, which ultimately led to the enormous spurt in the gold prices.Chinese economy is changing its reserves from US bonds to gold. In September, 2009, India bought 200 tonnes of gold from International Monetary Fund. Thus most of the countries are converting large proportion of their reserves into gold quantities. This spree of converting reserves into gold from other modes also largely contributed to the exorbitant increase in the price of gold the world over.During inflationary period, the currency values will be on the decrease. To protect against the decreasing currency values people go for hedging. When hedging is done in gold, the demand and accordingly the price of gold will be on the higher side.The increasing crude oil prices in the international market indirectly result in increased gold prices. Above all, the natural deposits of gold are shrinking and mining could not be increased to meet the increased demand of gold. This imbalance greatly contributed to the gold price rise.The World Gold Council has recently mentioned that in 2011 India’s gold imports are going to be higher than that in the last year (2010) imports of 963 tonnes. With reasonable estimates the price per 10 grams of gold by the end of 2011 will be around Rs 27000-28000. At this stage, the central government may think of increasing the import duty of gold.The government has imposed 1 percent central excise duty on branded jewelleries and gold articles with effect from February 28, 2011 by its notification No 1/2011, which also contributed to the price increase to that extent.The marks, initials or letters used by jewellery shops to merely identify their products may not be considered as brand names. Hall marking used in the gold ornaments will also not be considered as branding as this is an indication of the purity of the gold used in the ornament. Brand can be said to be something by which that product is known in the industry and which is considered as a basis by the customer to buy a product.According to forecasts and predictions, the exorbitant price increase of gold will continue for some time and then it will settle down and go by a slow pace. Irrespective of anything, it can be presumed that the passion of the people for the yellow metal will continue for ever.(The author is a chartered accountant)
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