If reports are to be believed, the result of general elections in April – May, holds the power to influence the gold prices in India. A stable new government would influence gold prices apart from equity markets, a study said.
Gold prices in India may increase beyond Rs 32,000 per 10 grams in the coming few months in case the voters bring up a highly fractured mandate leading to an unstable government at the centre, industry body Assocham (The Associated Chambers of Commerce and Industry of India) said in a study.
Contrastingly, in case India gets a decisive government after elections even within a alliance structure, the investor prejudice will return towards equity and real estate and the gold may lose in the deal of portfolio shuffling. If this situation comes, India will witness a huge flow of money out of gold.
In its study “Golden Connect of Indian Elections”, the industry body said, at the moment three important factors are driving the global gold market. The anxiety around the Indian general elections due in April-May is the primary factor. The concerns over Chinese economy and uncertainty over the pace of the US economic recovery may have a binding on Indian gold prices.
Global factors also play a big role in determining India gold price trends. The gold prices may still go higher even if there is a stable government, provided Chinese economy exacerbates, and the US economic growth does not do well.
India and China are competing with each other for retaining the slot of being the number one consumer of the yellow metal. India and China are the biggest consumers of gold. Any political or economic uncertainty in these economies will lead to noteworthy rise in gold demand, DS Rawat, Secretary General, ASSOCHAM noted.
In case a stable government comes, the Sensex would shoot up and the overall investor behavior in activities like real estate, finance, consumer goods, two-wheelers, and passenger cars would elevate. This will see money moving away from gold, which can then see further easing trend. However, reverse trend will be seen.
“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,” Assocham Secretary General D S Rawat said.