Trade data released today shows a deficit of $17.8 bn as compared to $14 bn last year. That is a 27% escalation. A major contritbutor has been a whopping 138% increase in Gold and Silver imports during the period. Imports at this rate will undoubtedly jeopardize Govt's attempts to contain Current Account Deficit. Any failure in that front is fraught with risks to the economy.
But it is abundantly clear that there is a rush to own physical gold. This doesn't augur well for the economy. Ironically the sudden and massive drop in gold prices - which should be indicating a lowering of demand -has actually spurred a frantic rush for owning gold. As it appears, its a worldwide phenomenon with China also importing significantly. This has its own complications, in the sense that it creates certain imbalances by way of quantity of gold that banks have with them at any point of time. Gold prices will then be subjected to unprecedented volatility. A comfortable reserve always makes any Govt breathe easy on its external liabilities. For India volatile gold prices could play havoc with its currency. The rest follows.
The rush for gold at least indicates a shift away from equities to that extent. No wonder the trade deficit numbers caused the benchmark indices to record the largest single day fall in 14 months. If the correction continues it might be time to accumulate quality stocks once again.
Until my next
Happy investing
Basudev
But it is abundantly clear that there is a rush to own physical gold. This doesn't augur well for the economy. Ironically the sudden and massive drop in gold prices - which should be indicating a lowering of demand -has actually spurred a frantic rush for owning gold. As it appears, its a worldwide phenomenon with China also importing significantly. This has its own complications, in the sense that it creates certain imbalances by way of quantity of gold that banks have with them at any point of time. Gold prices will then be subjected to unprecedented volatility. A comfortable reserve always makes any Govt breathe easy on its external liabilities. For India volatile gold prices could play havoc with its currency. The rest follows.
The rush for gold at least indicates a shift away from equities to that extent. No wonder the trade deficit numbers caused the benchmark indices to record the largest single day fall in 14 months. If the correction continues it might be time to accumulate quality stocks once again.
Until my next
Happy investing
Basudev
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