Gold prices set to crash further

“The Indian market will be affected to a great extent as the country is largest consumer of gold in the world.

Gold demand in India is expected to be around 500 tonnes this year,” said a market source. There was heavy buying at the retail level in India in the last three or four weeks. “This was amidst expectations that gold prices have hit the bottom. But they are in for a surprise. Prices will fall further,” said a leading gold trader.

Unlike in the past, Indian prices are now linked to world prices — thanks to globalisation. On November 8, the price of gold was fixed at $ 308.70 per ounce in London, the lowest fixing since the first week of July 1985. If the London price falls below the $ 300 level, there could be panic even in the local market. Considering the fall in prices from $ 416.25 in February to this level, it might go below the $ 300 level very soon.

Moreover, after allowing returning NRIs to bring gold almost two years ago, the government has now allowed select banks to import and sell gold in the open market. This is considered as another move which will push down prices and keep the supply level comfortable. “The declining trend in gold prices will keep buyers on the fence for the time being. The Indian market remained steady due to the Diwali demand. Now prices are likely to reach lower levels,” said a market source.

The trend in gold prices in the last one year indicates that the position of the yellow metal as an investment avenue will continue to take further beating.

Experts point out that the extent to which the prices have declined has never happened in the last 25 years. The parlous situation will be exacerbated if central banks of other countries move in before Switzerland and sell gold. The Netherlands and Australia have already sold gold.

According to experts, further liberalisation in gold trade is expected in India. The reforms taken so far are in line with the recommendation of the Tarapore committee report on full convertibility on the capital account. The committee had recommended sweeping changes in gold trade.

The opening up of the gold trade in the last two years has already removed the secrecy behind gold trade. Once full convertibility comes, it will be an open market for the gold trade with prices totally linked to international prices.