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    How our love for gold wrecked the rupee?

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     How our love for gold wrecked the rupee?
    Each time we buy and especially invest in physical gold, we are doing little service to the country and our currency (the Indian Rupee).
     

    India does not mine gold, which means we import the same for all our needs. India imported gold worth $38 billion between April-December last year, which means staggering sums were paid in dollars for gold imports. Each time we import gold we have a trade deficit (importing more then exporting). This puts a strain on our current account deficit and when that happens our currency falls against the US dollar. It has now reached a lifetime low of 60.70 against the dollar.

    In simplistic terms when we keep importing, we paying dollars and we are not able to export as much to bring dollars in to the country. This has an impact on our currency and it keeps getting weaker. We have also to import crude oil to meet the fuel needs of the country, which sees a large dollar outflow. While we can curb usage of gold, we just cannot curb oil imports.

    The real problem is that a lot of gold is hoarded, fuelling demand for the metal further. Finance Minister has already made an appeal to Indians to stop buying gold, which will stop putting pressure on the current account deficit and the Indian rupee in the long term.

    Everybody is doing their bit. The RBI has put fresh restrictions, corporates like Reliance Capital have suspended gold sales, the government has hiked import duties and the Bullion Association has asked its members to stop selling gold coins and bars. It's time we also did our bit.

    GoodReturns.in

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