The Impact of Rising Gold Prices on Consumers

Abstract

Gold is traded as a commodity but primarily it is a monetary asset. It counts up to more than 65% of gold's total accumulated holdings when it comes to 'value for investment’ by central bank reserves, private players and high-carat jewellery. The remaining accumulated gold deposits are as a 'commodity' for jewelleryin Western markets and usage in industry. It is a highly liquid market. It is argued that the real price of gold is should be driven by stock equilibrium rather than flow equilibrium due to large stocks of Gold as against its demand.World’s largest gold producing country is South Africa with 394 tons in 2001. On the other hand, world's largest gold consuming country is India with an annual demand of 843.2 tonnes comprising of 26.2% of total world demands.World’s gold demand is constantly increasing and it is nearing record levels at 4000 tonnes per year while the mine production is constant at 2250 tonnes per annum (Source: World Gold Council). The gold prices are moving upwards due to the reduction in production level as compared to the demand and also due to the weakening economy of the US.It has been found out the total world gold production would decline about 30% over the next 7 years as the new discoveries in the major gold producing countries have become difficult, expensive and time consuming according to the studies done by The World Bank and Beacon Group.In this scene, the current study was undertaken to find out the impact of the rise in gold prices on consumers.