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Election outcome to influence gold prices too besides equity market
It is not only the sensex but also the gold prices which will largely be influenced by outcome of the general elections and stability of the new government along with global concerns over China and the US, a recent study by industry body Assocham on Gold has pointed out.

Gold prices in India may increase beyond Rs 32,000 per ten grams in the coming few months in case the voters throw up a highly fractured mandate leading to an unstable government at the centre, it cautioned.

On the other hand, in case India gets a decisive government after elections even within a coalition framework, the investor bias will return towards equity and real estate and the gold may lose in the bargain of portfolio shuffling, the study: Golden Connect of Indian Elections projected.

?At the moment, three important factors are driving the global gold market: Concerns over Chinese economy, uncertainty over the pace of the US economic recovery and the anxiety around the Indian general elections. India and China are competing with each other for retaining the slot of being the number one consumer of the yellow metal. The demand in these two markets is going to increase should the two economies witness political or economic uncertainties,? the paper said.

The trend of the investors shifting again to gold as a safe haven is already being witnessed. Gold has risen by over 10 percent so far this year largely because of these reasons and the investor interest in bullion-backed exchange traded funds has returned.

?In the case of a stable government, the sensex will zoom and the overall investor confidence about economic activities such as real estate, finance, consumer goods, two-wheelers and passenger cars will pick up immediately. This will see money moving away from gold which can then see further easing trend. However, reverse trend will be seen should there is a highly fractured mandate,? the study noted.

Assocham's Secretary General D S Rawat in a statement said, ?While the global factors will certainly weigh on gold prices, the Indian market as a consumer of the yellow metal and for the equities would be surely affected by the unfolding developments.?

Mr. Rawat said the gold may still see increase in prices even if there is a stable government in India, should the situation in the Chinese economy worsens and the US economy does not pick up. In that case too, the global money will find haven in the yellow metal. But then, at least in India the alternate avenues for investment other than the gold will be clear.

The spot gold is hovering between USD 1330 and 1345 an ounce which has dropped by about 29 per cent in 2013. The trend may again look positive, although there is an opinion which indicates a further drop in the yellow metal right to USD 1,000 an ounce?, highlighted the study.

?Whatever is the case, India would matter since even despite severe restrictions and imposition of customs duty of 10 per cent, the imports would exceed 500 tonnes this year?.After a fall in the previous few months, reports indicate that gold imports rose again to 38 tonnes in January,?, it noted.



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