Pakistan , Ascertaining it's position in cricket again ?

The Importance of Golden Stocks in World Economy

Introduction:

Gold is one of most precious metals that possess special qualities. In 2018, 3,332 tons of gold was mined globally. Gold is mainly produced in three countries, China, Australia, and Russia.

Gold has a long and fascinating history of being used in different industries and applications. In each of the applications, gold has provided an outstanding performance due to its unique properties of being one of the most malleable and ductile metals with high melting point and easy recyclability.

Because of its biocompatible nature, gold has been a material of choice in medicine and dentistry field. However, the global demand for gold is centered around four major categories - jewelry, investment, central bank reserves, and technology.

 As a financial asset, gold for years has maintained its value and purchasing power even during inflationary periods. The gold in India is traded at the Multi Commodity Exchange market.

History:

·         Before gold was used as coinage, its value was recognized. Gold jewelry is buried in the Tomb of Djer, king of the First Egyptian Dynasty. Gold's beauty, luster, and malleability made it perfect for many uses. In fact, the Egyptians became masters in the art of beating gold into leaf.

 ·         Gold was first used for money in 643 BC. In 30 BC, the Roman Emperor Augustus set the price of gold at 45 coins to the pound. Its value has steadily increased since then, reaching a peak of $1,823 an ounce in 2011. It fell to $1,050.60 on Dec. 3, 2015. It began rising after that, reaching a new high of $2,061.50 on August 7, 2020

·         Prior to 1962, India was the world's largest gold market and the main trading center was Bombay. In 1962, the government enacted the Gold Control Act, which prohibited the citizens of India from holding pure gold bars and coins due to loss of reserves during the indo-china war. It was declared that the old holdings in pure gold had to be compulsorily converted into jewelry. Pure gold bars and coins were to be dealt only by licensed dealers.

·         A large unofficial market sprung up which dealt in cash only as a consequence of this legislation that adversely affected the official gold market. This also made way for smuggling and black marketing, which comprised of many jewelers and bullion traders.

·          India was on the brink of external debt default in 1990, as it had a big foreign-exchange crisis. The system of regulating and licencing had to be discarded, as it contributed to nothing but waste and shortages. As a result, the Indian Government pledged to the Bank of England 40 tonnes of their gold reserves. India had to accept the liberalisation principle.

 ·         In 1992, the government repealed the Gold Protection Act of 1962 and liberalised imports of gold into India for a Rs. 250 per 10 grammes duty charge. The government solved the issue of foreign exchange by allowing free imports and collecting the taxes. This move widened the gold market and also shrugged off the illegal trade that makes India price-sensitive in gold economies, i.e. smuggling and black marketing.

Gold in World Markets and Stocks:

Gold is an extremely liquid market. Each day, buyers and sellers trade huge volumes of gold on world markets. The two most important futures exchange for gold are the COMEX division of CME Group in New York and the Tokyo Commodity Exchange.

The COMEX gold futures contract is one of the most liquid commodity futures in the world; its daily trading volume represents about 27 million ounces of gold. Gold also trades on the over-the-counter market as well as in physical markets around the world.

Gold prices have been roaring and soaring in India since the economy slowdown took hold in 2018. But it has surpassed all previous statistics now—the rise is 28 per cent in just the first few months of this year compared to 25 per cent for the whole of 2019. And if you take the lockdown period, the increase in value of precious metals like gold and silver have been as high as 45 per cent.

In India, the Statutory liquidity ratio is the Government term for the reserve requirement that commercial banks are required to maintain in the form of either cash or in gold reserve or .PSU Bonds and in Reserve Bank of India- approved securities before providing credit to the customers

What are the Merits of gold 

When you look at asset allocation, Gold is your ultimate haven of safety. When there is a war, steep inflation, when the US dollar NSE -0.28 % is under pressure, which is the reserve currency for the world, gold tends to do well. It is more like a safety net. In India, deposits in good quality banks have also been a safety net, because they give fixed returns. 

So this safety element of your portfolio should be always there.

“The global Covid-19 pandemic had fuelled safe haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market,”.

A Q1 report by the World Gold Council.

Two years ago, in November 2018, the price of gold in India was around Rs. 30,000. Then they began to pick up, helped first by worries of a US-Iran war, and then by the double threat of a trade war between the US and China that fuelled worries of global repercussions, as did India's own faltering economic growth. As the US Federal Reserve has taken a range of measures to reduce interest rates as the focus had turned to looking at gold as a better bet than the dollar.

Gold's value, for the most part, is based on fear. Investors buy it when they think currencies are shaky or whole economies are wobbly. In a low-inflation environment, gold and other metals are not going to help you. The cost of money and demand for credit is low, keeping interest rates in check.

Gold Smuggling in India:

IMPACT assesses that India has approximately 20,000 tonnes of gold in private possession, stored in people's households and offered at temples. This volume exceeds the combined weight of gold reserves held by the central banks of the US, the Eurozone and China. The volume is only increasing by the day.

Most of the gold enters India through the UAE, which accounts for 75 per cent of all entries. The UAE, in turn, is the favourite destination for gold coming from the Great Lakes region in Africa, the IMPACT report says. The seizure rate of illicitly traded gold is around two per cent, according to the World Gold Council's (WGC).

Observers say India has recently seen an upsurge in gold smuggling, which was rampant during the decades before liberalisation and opening up of Indian economy in 1990s.

 The economic reforms of 1990s had repealed the Gold Control Act of 1960s that prohibited import of gold except for jewellery. The law had led to the emergence of a notorious network of gold smugglers during 1960s, 1970s and 1980s. Reforms led to a cap of Rs 450 per 10 gram on the duty imposed on the metal bringing gold smuggling almost to a grinding halt.

 The rates started rising in 2013 when the government shifted from fixed rate to ad valorem, and within two months, the duty on gold increased four-fold to four per cent.

 Today, the import of gold attracts a customs duty of 12.5 per cent (raised last year from 10 per cent), a GST of 3 per cent, and an additional GST of 5 per cent on making of gold ornaments.

The recent condemnable gold smuggling of swapna suresh is currently an issue in gold illegal smuggling from UAE and in Middle-East.

India's porous borders with Nepal, Bangladesh, Bhutan and Myanmar help smugglers in other cases. In 2019, the Directorate of Revenue Intelligence (DRI) was quoted in news reports as saying gold smuggling had surged from China, Taiwan and Hong Kong as well. E-commerce platforms are being used to hide gold in white goods, 

the DRI says.

 

Thus the smuggling of gold might also have an impact in indian economy, thus gold investing according to me might be a dilemma for many of the investors in India.