Slumping demand from India has helped push gold prices down 15 percent from their record highs above $1,900 an ounce in August, The Wall Street Journal reports.
The problem is a slowdown in India’s economy. GDP grew at a 6.9 percent annual rate in the third quarter.
While the United States would kill for such an expansion, it’s the smallest in more than two years for the Asian nation. Meanwhile, though India’s inflation has started to ease, it still stood at a lofty 9.1 percent in November.
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The slowing growth and high inflation have sparked an 18 percent drop for the rupee against the dollar this year. Because gold is priced in dollars, that raises the price Indians must pay for the precious metal, lowering their demand.
|(Associated Press photo)
It’s no wonder then that Indian demand for gold jewelry plummeted 26 percent in the third quarter from a year earlier, according to the World Gold Council.
That’s significant for the price of gold, because in 2010, India topped the world’s list for biggest buyers of gold jewelry, accounting for 19 percent of global gold demand.
High inflation and a weakening currency is usually a recipe for investors to buy gold, and that appears to be happening in India. But investment demand pales in comparison to jewelry demand.
Some experts anticipate that continued sluggish economic growth in India and other nations will put further downward pressure on gold.
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