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Economics Commentary - Even though there is a weak trend in global markets, the price of gold has increased in the Indian markets

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´╗┐School Code: 003528-011 Name of School: Johnson Grammar ICSE and IBDP Name of Candidate: Nithil Chigullapally Candidate Number: dqt Title of Article: Gold up by Rs 25 on strong demand; silver down by Rs 800 Source: Economic Times Date of Article: March 3rd 2012 Commentary Date: 9th July 2012 Section: Micro/International Word Count: 661 words Economics Commentary The gold prices have been constantly increasing in India due to the spot demand before the marriage season, currency movements and the traditional investment patterns. The constant depreciation in the Indian currency and a change in government policies are supporting a steady rise in the price of gold. Earlier, there was a flat rate of Rs. 300 for 10g on gold. But now, due to the change in the government policy on import duties, 2% is charged on 10g of gold. This change in the government policy will increase the import duties on the metal to nearly a double, increasing its prices. ...read more.


Investors observe recovery in stock markets which helped gold prices increasing. This high trend of gold in the Indian market can be explained as an exception to the law of demand i.e. the increase in the price of gold is increasing the demand for the metal. Indians are the biggest buyers of gold in the world. Gold imports reached 958 tons in 2010, and in 2011 gold imports were still high despite the increase in prices. Gold can hence be considered a Veblen good. A Veblen good is one whose demand continues to rise in spite of an increase in its price level. Therefore the normal law of demand is not applicable here. Such goods are known as goods of conspicuous1 consumption because people regard them as status symbols and there is an inherent passion towards this precious metal. A normal demand curve slopes left to right downwards. ...read more.


http://www.kitco.com/LFgif/ag0365nyb.gif Even though the weak trend in silver, the demand for silver coins has been the same as the people in India buy these coins for good luck and prosperity. In conclusion, gold and silver are both facing a weakening trend in the global market due to the world economic uncertainties. But, in the Indian Market, gold is having a high trend whereas silver has a weak trend. As gold is continued to be purchased high in India due to its snob value status. Month Gold Silver January 0.14 8.71 February 0.15 9.43 March 0.17 10.11 April 0.01 0.55 May 0.02 1.29 A Tighter Regulation 1. Gold and silver are the two most popular commodities traded on Indian commodity bourses. 2. FMC may ask exchange to tighten monitoring and receive weekly data on trade volume. 3. National commodity exchanges say such measures will help strengthen investor trust in the market. 4. The only downside of stricter regulation is that it may reduce bullion trading volumes. ...read more.

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