StatsGuru-02-December-12

Gold is giving India’s policy makers headaches these days. Why, precisely? Well, the amount of gold imported by Indians increased considerably over the past year and some, as Table 1 shows.

It might decrease somewhat in 2011-12, but has caused several problems already. As Table 2 demonstrates, in value terms gold imports have skyrocketed. But, even more worryingly for policy makers, wheat is now almost 10 per cent of total imports by value – and thus a significant proportion of the current account deficit — more than three fourths.

Why is this happening? The first thing worth noting is that it is, in fact, a worldwide phenomenon to an extent. As Table 3 shows, world gold demand has been significantly higher since 2008, when the financial crisis set in. Of course, in dollar terms, demand has increased even more steeply.

 

Meanwhile, even over the past year, gold has seen a steady increase in prices, as Table 4 shows. Indeed, this difference is stark when compared to other sources of investment.(Click here for tables)

Table 5 compares the return on various forms of investment in gold to other possible destinations for household savings. As is clear, the returns on gold are considerably higher than on various debt funds, often touted as the destination of choice in a crisis-hit market. Of course, returns on equity have been largely nonexistent.

Unsurprisingly, therefore, given that gold exchange traded-funds have performed pretty well for investors – as shown in Table 6 – more and more Indians are turning to them as a destination for their savings. Indeed, as Table 7 shows, assets under management for gold exchange-traded funds have increased by an order of magnitude over the past few years.