Indian poll outcome to impact gold prices as well as stocks: Assocham
03 March 2014
The outcome of general election due in April-May with prospects of a stable new government would influence gold prices apart from equity markets, according to a study commissioned by the Associated Chambers of Commerce and Industry (Assocham).
"Gold prices in India may increase beyond Rs32,000 per 10 grams in the coming few months in case the voters throw up a highly fractured mandate, leading to an unstable government at the centre," the study says.
On the other hand, in case India gets a stable government even within a coalition framework, the investor bias will return towards equity and real estate, and gold may lose in the portfolio shuffling.
In its study Golden Connect of Indian Elections, the industry body said at the moment, three important factors are driving the global gold market: Concerns over the Chinese economy, uncertainty over the pace of the US economic recovery and anxiety around the Indian general election.
India and China the world's two top consumers of the bullion, and it is hard to say who is the current 'leader' in this regard, despite India's long-standing reputation as the world's biggest gold consumer.
"The demand in these two markets is going to increase should the two economies witness political or economic uncertainties," says the study.
It said the trend of the investors is shifting again to gold as a safe haven for parking funds, as prices have risen over 10 per cent so far this year.
"In the case of a stable government, the (BSE) Sensex will zoom and the overall investor confidence about economic activities such as real estate, finance, consumer goods, two-wheelers and passenger cars will pick up immediately."
This will see money moving away from gold which can then see further easing trend. However, reverse trend will be seen should there is a highly fractured mandate, it said.
"While the global factors will certainly weigh on gold prices, the Indian market as a consumer of the yellow metal and for the equities would be surely affected by the unfolding developments," Assocham secretary-general D S Rawat said.
He said that even if there is a stable government in India, the yellow metal may still see an increase in prices even if the situation in the Chinese economy worsens and the US economy does not pick up.
In that case too, global money will find a haven in gold, but for India alternate avenues for investment other than the gold will be clear, he added.
Global spot gold prices are hovering between $1,330 and $1,345 per ounce, a drop of about 29 per cent since 2013. But the trend may again look positive, it said.
"Whatever is the case, India would matter since even despite severe restrictions and imposition of customs duty of 10%, the imports would exceed 500 tonne this year. After a fall in the previous few months, reports indicate that gold imports rose again to 38 tonne in January," Assocham said.