IF you take a look at gold prices in the past few months, they have been moving in just one direction-- upwards. From Rs 10, 650 for 10 grams last January 2008, the price has moved to Rs 15,490 today. Gold price is at a seven month high and is up by 10% since January this year. The World Gold Council reports that global demand was up by 4 per cent in 2008.

A quick look at the prices in the last few days:

What are the reasons for this outperformance?

The spurt in prices could be attributed to following reasons.

Weak equity markets

The volatility and instability in the stock market has boosted investor’s sentiments to move towards gold as an investment. Gold has been viewed to give steady and assured returns and hence investors move from choppy market to save haven like gold. Analysts say that people are rather bullish on gold, due to which gold prices have been rallying for a while now where Sensex is down 45% during same time.

Depreciating rupee
In simple words, when rupee depreciates, gold price increases. The international price of gold depends on the strength of dollar.

Central bank buying

The monetary policies issued by the Reserve Bank of India influences the investors actions, which in turn affects the investors decision to invest in gold or any other asset class.

Global economic crisis

There are reports of several governments like the Chinese, Russian who are diversifying their reserves into gold which is giving additional momentum to gold demand that is apart from the investment demands through gold exchange traded funds or gold ETF.

Illustration: Vaibhav Shirke

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e-mail: Elda Christy

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