September 9, 2009. This was the day which drew the
attention of the people towards the yellow metal, gold, as it
traded at $997.9 per ounce on that day which was near
to historic high of $1,030.8 seen in March 2008. An
important observation here is that there were ample reasons for the increase
in gold price in 2008. The global recession and weakening dollar
had induced the people to look at gold as a safe haven. Today, there
are symptoms of revival in the performance of economies across
the globe and the dollar is also not as weak as it was one year ago.
But, still gold is continuing to make historical highs. What could be
the reason behind this? How long will this uptrend continue? Is
it advisable to buy gold now? Or should we wait for the correction
to take place? These are issues of interest for both analysts
and laypersons.
Historically, gold is considered as a unique asset class, as it
is divisible, indestructible and transportable. Even if gold is not
an essential commodity for the survival of human beings, its uses
are unlimited from time to time. It acts as a hedge against inflation. It
is a medium of exchange in trade. It is a widely accepted form
of currency since ancient days. Its role is considerable at the time
of political and economic uncertainties. It is considered as an
excellent tool for portfolio diversification, as it is negatively related with
other asset classes. Further, the usage of gold in India is
especially significant for jewelry and jewelry accounts for about 70% of
total gold demand.
As per the statistics available in 2007, China is the
largest producer of gold followed by South Africa and Australia.
China accounts for 11.3% of total mine production and South Africa
for 11.1%. Australia and the US account for 10.4% and
10.3% respectively. One interesting thing is that while India does
not occupy a place among the top 10 gold producing countries, it is
the largest consumer of gold in the globe. Moreover, India's
consumption is more than double than that of China which is the second
largest consumer and more than three times that of the US which is
the third largest consumer (Refer to Table 1). India accounts for 27.7%
of the total world consumption.
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