Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Gold and the Indian Rupee Analysis

Commodities / Gold and Silver 2014 Jan 02, 2014 - 11:06 AM GMT

By: Submissions


Srinivasan Rangaraj  writes: The weak balance of trade (i.e. imports greatly exceed over exports) terribly pushed down the value of the rupee against the dollar on 28th August 2013. That is to say the rupee hit 68.85 against the greenback.

India faced an all time high of 4.8 percent deficit in its current account (balance of trade) during the previous fiscal.

Heavy gold imports and withdrawal of funds by foreign institutional investors by their huge selling off, with the expectation of scaling down of bond buying program by the Federal Reserve were the main cause for this giant current account deficit (CAD). 

However, the actions of the government of India and the Reserve bank of India (RBI) with regard to rein in of gold imports have yielded reasonable results in the reduction of gold imports. The government hiked the import duty of gold from 2% to 10%, and RBI stipulated a condition for gold importers that 20% of their imported gold had to be reexported.
The shrinking of gold imports and the timely actions of present RBI Governor Mr. Ragu Rajan, allowing “Foreign currency Non Residents (Banks)” swap arrangements and hiking money market rates to lessen speculation held further the sliding of the value of the rupee and elevated it persistently. It is now hovering around 62. However, even now, it is yet to recover from the 14 percent drop when we see it on an annual basis.

The above mentioned measures of the government and RBI brought down CAD at 1.2 percent in the 2nd quarter of 2013. These measures also increased the flow of foreign capital continuously into the country for the past six weeks. Consequently, the foreign exchange reserve of India was at $295 billion in the middle of December 2013.  

The international gold prices reduced by 28 % in 2013. The local gold prices plummeted only by 3.5% thanks to the aforesaid measures.

The Federal Reserve stated that since the US economy was improving, it had decided to reduce the stimulus bond purchase program by $10 billion every month from $85 billion to $ 75 billion, from January 2014 onwards. However, it told further that it probably would keep low federal fund interest rates at 0-25 %, mainly till inflation rate remained below its 2% target level, even if the unemployment rate plummeted below 6.5 %.

The reasons for contraction in the prices of metals after the announcement of the Fed tapering is that the loose monetary policy of the Federal Reserve usually increased the flow of the dollar and crashed down its value and simultaneously enhanced and kept the value of gold, silver, copper, etc high for a longer period. Hence, the tightening announcement of the Fed bond purchase program pushed down the prices of metals and lifted the value of the green back against the major other currencies and most of the US economic data released recently were  positive and confirms the Federal Reserve’s statement that US economy is improving.

Fixing the CAD for this financial year as less than 3 percent RBI recently stated that the delay in reducing the bond buying program brought back foreign capital into the country, and narrowed down big gap in CAD and the nation was gearing up for US Federal Reserve’ scaling down. The apex bank also expects that consequence of the reduction will likely be less and temporary phenomenon. 

I think that while the Fed Tapering will likely to push down the international gold prices by enhancing the value of the dollar globally, the recent measures of government and RBI and the Fed’s commitment on keeping the low interest rates will likely to keep the foreign exchange reserves at the satisfactory level.
Hence, I guess that though there may be some fall in the rates of Indian gold prices and the rupee value, the gold price and rupee value in India will not likely to drop off drastically.



© 2013 Copyright  Srinivasan Rangaraj   - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules