Gold Chosen to Be Curbed By India to Save Rupee

By | August 22, 2013

Due to inflation spikes of the rupee, India has restricted foreign exchange outflows as well as gold imports starting August 14. This is a new attempt to help salvage the dropping Indian currency and to hold back a crippling external deficit. India is known to be the biggest buyer of bullion but the newest financial restrictions by the Indian government will surely add constraints to the already struggling world gold market.

 

“Finance Minister P. Chidambaram also reiterated his pledge to narrow the current account deficit – the main source of the rupee’s weakness – to 3.8 percent of gross domestic product this fiscal year and said the currency would not be allowed to slide into ‘free fall’,” in.Reuters.com reported. “

The Reserve Bank of India’s latest steps to support the currency, which has plumbed record lows against the dollar, included cutting the amount of overseas direct investments allowed by Indians. Those investments reached $3.2 billion in July, according to central bank data,” Reuters said. The second half of the restrictions involves banning imports of gold coins and bars in the country.

Gold bullion has been on a roller coaster ride when it comes to its world market pricing, leading many investors to believe that gold investments as a hedge or as safety investment is no longer a viable measure. “It is only the third time in (modern) history gold has witnessed such an extreme sell-off,” Euromoney, the top magazine for institutional investors, said Adrian Ash, head of research at Bullionvault.com. That said, many financial experts are still firm at rectifying this “gold-bubble-has-burst” claims. “There are good reasons to believe the long-term bull market is not done yet,” says Ash. According to Ash in Euromoney’s article Gold’s hangover from hell, “negative real interest rates are theoretically good for gold but what is most important is not where you are but your direction of travel.” You can further read the gold investment analysis at EuroMoney.com. As for the full report of India’s decision to curb gold, read Rafael Nam and Shamik Paul’s report on the Reuters India site as linked above.

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