In India, Hutti gold mine company in Karnataka is the only company contributing 3 tonnes of gold to Indian market however another source of gold is from the recycled jewellery or scrap jewellery. In 2006 105 tonnes of gold was recycled in a year. To meet the bulk demand from the Indian market India imports approximately 700 tonnes of gold per year. In the year 2008 during the diwali time the demand for gold increased leading to the fall in the gold price from $900 to $712 this was because of the reduction in demand that happened in the year 2007 when the gold price went up.
The high price of gold has reduced the demand for it especially in the jewellery sector. However in 2005 when the Gold price went up the demand for gold also increased equally. The real estate and stock market was considered a better option than investing in gold. This made the analysts comment that the demand curve for gold in India is inverted. However the Indians believe that gold is the best way to preserve and improve their wealth. During recession investors felt that gold was the best mean to secure and protect their wealth. But the demand for gold went down because of the raise in the price of gold.
Indians gold demand is met through imports. However the import of gold has set to have fallen. There is zero percent imports during the year 2009. There is a positive as well as negative relationship between price as well as demand for gold. The maximum demand for gold was in the year 1998 being 871tonnes and the price being Rs12000 and the least being in the year 1991 where the price was Rs8518 and the demand was 271 tonnes. The Demand for gold also depends on other factors such as income of customer, population, tastes and preferences of customers. The relation between price and demand is shown through a demand curve by the analysts.
Platinum started replacing gold as the price of it was comparatively lesser than gold. But the demand for gold never reduced in India as gold is considered as a symbol of tradition and status building up its demand in the Indian market. The global recession in the year 2008 made people invest in the ever increasing gold price. The increase in gold is due to the demand for investment however some analysts believe that gold is basically used for jewellery purpose. The positive and inverse effect shows the relation between price and the substitution effect of gold.
- According to the data the price is varying in such a way that it is neither increasing nor decreasing which shows that the non pricing factors have an influence on the market value of gold.
- In some years there has been rise in demand as well as the price of gold which shows that during some years it is following the law of demand.
- We can also see that even if the prices of gold are increasing, demand is also increasing in some cases which shows that demand for the gold depends highly upon peoples’ willingness to purchase. Under this case study we have tried to find out the effect that non-price factors like population, income of consumer, taste and preferences, expected future prices, price of related goods etc. can have on the demand of the product.
- Uncertainty in imports that is in the year 2009 there was zero percent imports where as in the year 1998 ,871tonnes of gold was imported. 5. Irreplaceable quench for gold from any other precious metal due to people’s beliefs and culture.
- From the year 2008,switching to gold as investment rather than any distressed financial assets.
A paradox is something which has two statements that contradict each other. So the question speaks about soaring prices and increasing demands. A clear picture can be obtained only after understanding the demand law. Law of demand:- Keeping non price factors constant, the demand for a commodity rises with the fall in price and falls with the rise in price of the commodity. It can be said that question about the soaring prices and increasing demands is a paradox as it does not follow the above the law and despite the increase in gold prices, the demand has been consistently increasing which should not be the case.
Analysing the reason because of which the gold market does not follow the demand supply rule, all the non-price economic factors are not constant. But according to the law only when the non-price factors are constant there is an indirect relationship between demand and the price.