December 15, 2013
Abstract: Four considerations in shaping a strategic approach to gold are:
- Gold imports have been a significant contributor to a surge in the current account deficit;
- Demand for gold is rising due to multiple reasons, including cultural factors, rising incomes, and increasing propensity for using it for portfolio diversification;
- It may be possible to satisfy the demand for physical gold through the creation of appropriate financial assets, which would obviate the need for gold imports; and
- While Indian production is low, the big potential supply can come from current holdings, provided a regulated gold market can be established.
The above four considerations — the current demand, alternatives, and supply — provide the ingredients to think about the objectives and instruments of a strategy for gold.
Keywords: gold loan; gold bond; strategic approach; current account deficit; imports; exports; inflation hedge