Why Indians are not gaining from lower international gold prices?

Updated: Saturday, March 1, 2014, 9:31 [IST]

India imports all of its gold requirements, which is pegged to international prices. Now, in the last 28 months gold prices have fallen from record levels in excess of $1930 an ounce seen in Oct 2011 to the current levels of $1333 an ounce.

This means that international gold prices have fallen almost 30 per cent since Oct 2011. Logically, if India imports gold at international prices, there should be a fall of 30 per cent in domestic prices.

But, that's not happened...

In Oct 2011, when international price of gold hit a historic peak of $1930 an ounce, the cost of 10 grammes gold in India hit Rs 26,000 per 10 gramme. Check gold rates here

Now, in Feb 2014 when international prices have fallen to $1334 an ounce, 10 grammes gold in India has become even costlier at around Rs 29,000, instead of becoming cheaper.

Currency the big problem

In August 2011, when gold was trading at $ 1930 an ounce, the Indian rupee was at 45 against the dollar. In Feb 2014, the rupee is trading at 62 to the dollar. This means that we have to pay more for importing gold as the rupee has fallen dramatically against the dollar in the last two and half years.

This has negated all benefits that would have made gold cheaper for us, had we to have a stable currency. This is why nations which are having a stable currency, would have benefitted from lower gold prices.

To add to the price of gold, the government has raised imports duties thrice last year, making gold even costlier for the consumer.

Of course, there is also the 80:20 scheme, where imported gold has to be provided for jewellers. All this has added to a hike in gold prices in India.

Consumers will only benefits from falling international prices of gold, when the currency remains stable. Check currency rates here

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