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Gold Prices in India Surge to Record Highs, Sparking Economic Concerns

Gold prices in India have reached all-time highs, driving a shift in investment from stocks to jewellery and raising economic concerns for the government.

In the picture I can see the gold coin and there is a photo of a woman on the gold coin.
In the picture I can see the gold coin and there is a photo of a woman on the gold coin.

Gold Prices in India Surge to Record Highs, Sparking Economic Concerns

Gold prices in India have surged to record highs, with silver prices following suit. This trend, coupled with a shift in investment from the stock market to gold jewellery, poses economic challenges for the country and its government.

Gold prices have risen by a staggering Rs 41,050, or 52%, in the current calendar year alone. On Tuesday, gold prices reached a lifetime high of Rs 1.20 lakh per 10 grams in the national capital. Silver prices also hit a new high, climbing by Rs 500 to Rs 1,50,500 per kilogram. Akshat Shrivastava, a hedge fund manager, has raised concerns about the trend of wealth moving from the stock market to gold jewellery in India.

The sharp rise in gold prices is contributing to an outflow of money from the stock market into jewellery. This shift is problematic as gold jewellery is largely illiquid, leading to missed tax revenues for the government, unlike the stock market. Nearly 70% of India's gold is held in the form of jewellery, posing economic challenges for the country and the government's fiscal health.

India's stock market has underperformed in the last year, with the BSE Sensex falling from approximately 85,978 points to around 80,267 points. Shrivastava warns that new investors in the stock market since 2020 may shift to gold if the stock market doesn't improve. It's worth noting that new investors have actively participated in the Indian stock market since 2020, as reflected by the nearly doubled value of the Indian benchmark index Nifty50 since that year. However, gold has outperformed the NIFTY-50 index in the last 5 years, leading some investors to consider gold as a safer investment.

The sharp rise in gold prices and the shift in investment from the stock market to gold jewellery present significant economic challenges for India. The government may need to consider policies to encourage investment in the stock market and manage the economic impact of the gold rush.

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