Gold price hike likely to continue

By Raj Kumar K.C.

KATHMANDU, Jan. 26:Triggered by the spiky price hike in the major international market due to fear of the Gulf War, the price of gold in the country is expected to go up as high as Rs 9,500 per ten grams (Rs 11,080 per tola) in the next couple of days.

According to gold dealers, if the international situation continues to remain unstable, the price of the yellow metal will reach Rs 12,000 per ten grams. The present international situation has rattled investors across the globe who find shelter in gold, the most- trusted option in times of war and economic turmoil.

The price of gold will go beyond Rs 9,500/- (per ten gram) in the next few days, says Rajendra Shakya, general secretary of Nepal Gold and Silver Dealers' Association (NGSDA).

According to Shakya, there has been a significant change in the consumption pattern of gold in the local market. Instead of buying gold for ornamental purposes, now customers' priority is on hoarding them, says Shakya.

Kathmandu's bullion market is normally influenced by the price of the yellow metal in London, Hong Kong or Tokyo. The price of gold in the international market is $369 (i.e., Rs 28,800) per ounce. According to the international price, the local price of gold is around Rs 9,650/- per ten gram. But the price of gold on Sunday was Rs. 9,360/- per ten grams.

The difference in the price of gold in the local market is around Rs. 350 per ten grams. " We are trading at a lower price in order to regulate the local market," he adds.

R.M. Shakya, a gold dealer says that the number of buyers has increased in the last few months. " Maybe, they want to convert their money into gold for safety reasons," he says, adding " It is easy to hide and make it convertible."

Potential investors in shares have now turned to gold. Instead of buying shares, they prefer gold, which is more secure than shares. "It is also one of the reasons behind the downfall of the share market," says Arjun Paudyal a stock market analyst. On the one hand, the country's economy is reeling under low equilibrium. The exports and imports trade has declined by 18 and 20 per cent respectively.

On the other hand, people are bound to sell off their property and buy gold for security reasons.
Economists at Nepal Rastra Bank say that volatility of share prices in the international market and decline in the price of the US dollar are also responsible for the rise in the price of gold. If the price of gold continues to go up, it will affect the money market as well, they say.

However, Prof. Guna Nidhi Sharma, a monetary economist, affirms that the rise in the price of gold and 'hoarding of gold' will have a negative impact on broad money supply (M2) and affects investment. On top of that, this could downsize the real investment promoting portfolio investment.

Multiplier effect of the rise on the price of gold and its hoarding can make the economy unproductive. Investment in gold does not create any economic activities, say economists.

Nepal used to import 12 tons of gold annurally, but it has declined to nine tons now, according to NGSDA.