MBA (Finance) – IV Semester, Investment and Portfolio Management, Unit 1.2
Define Real Assets
For ages, gold and silver have been considered as a form of investment. They are considered as best hedge against inflation. This is a favourite form of investment amongst the rural and semi-urban population. Besides, investors tend to invest in jewellery instead of pure gold. As a result, when they buy jewellery, the price realization is usually less than total purchase price (this is due to higher making charge of jewellery). The price of gold has declined in the later part of the nineties. Gold prices are suppressed because of large supplies overtaking the demand. The government has allowed imports of gold to certain banks and agencies and they have huge stocks of gold. The gold prices remained depressed in the international markets too in the late nineties. The following reasons are cited for the low price of gold in the international market.
Gold and Silver
For ages, gold and silver have been considered as a form of
investment. They are considered as best hedge against inflation. This is a
favourite form of investment amongst the rural and semi-urban population.
Besides, investors tend to invest in jewellery instead of pure gold. As a
result, when they buy jewellery, the price realization is usually less than
total purchase price (this is due to higher making charge of jewellery). The
price of gold has declined in the later part of the nineties. Gold prices are
suppressed because of large supplies overtaking the demand. The government has
allowed imports of gold to certain banks and agencies and they have huge stocks
of gold. The gold prices remained depressed in the international markets too in
the late nineties. The following reasons are cited for the low price of gold in
the international market.
Weak demand from Asian countries which are the largest consumers of
gold.
Continuing pressure on central banks to dishoard gold
Legislative measure like the Sweedish Government move to delink
gold from Swiss Franc and lower gold reserves by the European Union.
According to World Gold Council (WGC), as against an increase of
9.0 percent in world demand, the demand for gold in India increased by 45.0
percent to a record level of 737 tones during 1997 from 507 tones in 1996,
reflecting the increased response to the decline in prices. The substantial
increase in domestic demand for gold was met by ease of supply facilities by
(i) allowing non-resident Indians to import 10kg. of gold (as against 5kg.
earlier) once in every six months with effect from January 1, 1997, (ii)
allowing 12 authorised agencies to import gold under Open General Licence (OGL)
without any limit on quantity and sell it in the local market against rupees
after payment of approximately 5 percent duty and (iii) lower prices in the
international market. The following table gives prices of gold and silver.
The monthly average price of silver in Mumbai market fell from ` 6969 pr kg. in April 1997 to
` pkg.
July 1997. Thereafter, it exhibited a near – steady increase
to ` 8557per
Kg. in March 1998. The price of silver in the Mumbai and New York markets
reached a high of ` 9350
per kg. and 731 cents per ounce, respectively, on February 5, 1998. The average
spread between the domestic and international prices of silver declined to 19.5
percent in 1997-98 from 24.3 percent in 1996-97 with the prices in the domestic
market moving in tandem with the international market prices.
The investment analysts feel that there will not be major rise in
gold prices until 2000 unless there is a currency depreciation. They are
optimistic about the rise in silver price.
