How to Reduce Gold Import

Topics: Investment, Gold as an investment, Bretton Woods system Pages: 6 (1952 words) Published: August 27, 2013

Ruchi Gupta

 What is gold?


 Various uses of gold  Relation between price of gold and other economic factors  Importance of gold in India  Why increase in demand of gold in India.  Import of gold in India.

 Negative effect of gold import on Indian economy.
 Steps taken by government for reducing import.

 Steps that should be taken by government to reduce import.

Gold is an element and a mineral. It is highly prized by people because of its attractive color, resistance to tarnish and its many special properties - some of which are unique to gold. Its rarity, usefulness and desirability make it command a high price. Trace amounts of gold are found almost everywhere but large deposits are found in only a few locations. Although there are about twenty different gold minerals all of them are quite rare.

VARIOUS USES OF GOLD: Jewelry:- Gold has been used to make ornamental objects and jewelry for thousands of years. About 78% of the gold consumed each year is used in the manufacture of jewelry.  Financial Gold: Coinage, Bullion, Backing :-The gold used as a financial backing for currency was most often held in the form of gold bars, also known as "gold bullion". The use of gold bars allowed convenient handling and storage.  Industrial use:- The most important industrial use of gold is in the manufacture of electronics.  This includes: cell phones, calculators, personal digital assistants, global positioning system units and other small electronic devices.  Gold is known to have been used in dentistry.  Gold is used as a drug to treat a small number of medical conditions  Gold is also used as a lubricant between mechanical parts.  it is the metal associated with highest esteem and status.

RELATION BETWEEN PRICE OF GOLD AND OTHER ECONOMIC FACTORS:Gold is a leading economic indicator. The relationship between the price of gold and important economic factors are: The Dollar:- The US Dollar has an inverse relationship exists between gold and the dollar. As the dollar weakens, the price of gold increases. In contrast, the price of gold decreases as the dollar strengthens. As the dollar continues to weaken against foreign currencies, investors lose confidence in the dollar and invest more money in gold.  Inflation:-Inflation involves the loss of purchasing power. When an economy is experiencing inflation, it takes more dollars to buy a product or service than it cost in the past. Investors tend to shift their money to gold when they believe inflation is on the horizon. A greater demand for gold causes the price of gold to increase. Many investors use gold as a hedge against inflation. Fear that the dollar will lose its value causes individuals to invest in a tangible asset that holds value.

 Interest Rates:-When the economy is performing well and market interest rates are high, treasury notes, money market accounts and certificates of deposit offer investors attractive interest rates that are greater than the inflation rate. When market interest rates are low, these investments offer low interest rates that are usually lower than the inflation rate. An investment with a rate of return lower than the inflation rate results in a negative return. The low interest rates and negative returns make investing in gold an attractive option for many investors.

 The price of gold affects countries that import and export it:The value of a nation's currency is strongly tied to the value of its imports and exports. When a country imports more than it exports, the value of its currency will decline. On the other hand, the value of its currency will increase when a country is a net exporter. Thus, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when gold prices increase, since this increases the value of the country's total exports.

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