With the improvement in the economy and the possibilities of vaccine, the glow of yellow metal, or gold, had started to fade in the last months. After touching a price of 56,000 in August 2020, gold is still trading close to 45,000 even after a slight bounce. In such a situation, there has been a great rise in gold imports in March. Let us understand the reason for the increase in imports and its effect-
Gold import increased manifold
According to the data released, according to the gold import value in March 2021, the total was about $ 8.4 billion. This is a jump of 584% compared to the month of March of the previous year. Looking at the monthly data of imports, it is found that after October, gold imports have increased continuously every month.
According to a Reuters official source based news, 160 tonnes of gold were imported in March from the volume perspective. This is almost 471% more than in March of last year. According to experts, in normal months, gold imports are around 70-90 tonnes. According to Reuters, in the last quarter of FY 2020-21, total imports increased more than 2 times year on year from 124 tonnes to 321 tonnes.
Out of a total import of $ 34.5 billion for FY 2020-21, $ 27.7 billion was imported only in the last 6 months.
What is the reason for this increased demand?
After the gold prices reached 56,000 per 10 grams in August 2020, now its price has come to around 45,000. Jewelers and investors want to take advantage of the huge price cuts. Due to the close proximity of Akshaya Tritiya, demand for it may be increased for jewelers to stock. Many people had stopped the purchase due to increased prices.
Import duty on gold and silver was reduced from 12.5% to 7.5% in the budget by the government and cess of additional 2.5% was imposed. Even though prices have not shown much change, industry experts believe that this has given a boost to the formal economy in the gold and silver market and the increase in imports may be the result.
It will also be important to understand how much of the gold imported was to be exported back.
Its effect on the economy too
Higher import of gold also affects the import bill. Trade deficit will increase if imports increase, which affects foreign exchange reserves. If the gold import remains high in the coming days, then the pressure on the rupee can be seen.
The boom in demand for this gold is also being compared to the situation in 2011-13. Due to high inflation and low interest rates, the real interest rate for people had become negative. In such a situation, investors had increased investment in assets like gold. If this happens again, to increase household savings, one has to consider increasing the interest rate, which can affect the pace of the economy. Keeping in mind the government’s plan to raise money from the market, the situation of increasing interest rate may become even more difficult.
These are the estimates regarding gold prices
Currently, there are many reasons for the relatively low price of gold. With the increase in bond yields, people are left with attractive new investment options. Discussion of bitcoin and other cryptocurrencies as store of value has also impacted gold prices.
In the recovering economy from Corona, gold prices fell short of the expectation of a faster recovery. However, in the coming days it is expected that under normal circumstances, the price of gold will rise again. Most of the brokerage houses have positive estimates for Yellow Metal this financial year. From the perspective of diversifying the portfolio, it is considered good to keep 10% -15% of the investment in gold.
Last week, there was a slight rise in gold prices in the international market. Gold on MCX has also crossed 45,400 from its recent low of 44,100.