Who says the average Indian will never part with her gold? On December 4 this year when gold price shot up to Rs 6,045, an eight-year high, people in Maharashtra and Gujarat queued up at jewellery stores to sell some of their gold. Obviously, the idea was to book a tidy profit while the prices were high. It's safe to assume that these are people who will not buy clothes or even a car with the money they have realised. Instead, they are most likely to wait for gold prices to fall and then refill their impoverished gold boxes. So, will gold prices fall in the days to come?

To answer that question, one needs to understand why they've been rising continuously for the last four years. For starters, gold is a commodity pretty much like oil and rubber, therefore, its price is determined by demand and supply. But that does not explain why prices have moved up so rapidly since 1999. According to A.V. Rajwade, CEO, Rajwade & Co., a treasury and forex management consulting firm, there's a "cocktail of factors". These include worries about the US dollar-in the last 12 months, it has lost 17 per cent versus the Euro, 8 per cent against the British pound, and 10 per cent compared to the Japanese yen-threat of terrorism, lumbering growth in developed economies, poor returns on savings, among others.

India has not been untouched by those concerns, as it turns out. Gold prices usually start going up (apart from changes in the demand-supply equation) when other avenues of investment, especially equities, start under-performing. But in India, the stockmarket has been on a steep climb beginning this year, and yet gold prices have risen alongside. What this indicates, then, is the underlying mood of uncertainty across the world. While historically gold has never been a darling of investors, the rush this time stems from a desire to protect the principal. Even that, Rajwade contends, is a myth. "That's more psychological than real, since research shows that gold prices have not really kept pace with inflation over the long term," says Rajwade.

Have gold prices peaked? The consensus seems to be that it hasn't. Armesh Arora, Vice President, Bombay Bullion Association, feels that prices have also gone up because some of the biggest gold producers such as Newmont Mining Corporation, Barrick Gold Corporation, and Anglo Gold Ltd. are no longer hedging their bets by getting into long-term contracts, but are into spot selling. Yet, not many think it will cross the Rs 7,000-mark (for 10 gm) because central banks, which hold the maximum amount of gold in most countries, may just step in by increasing their supply of gold.

The massive jump in gold prices has meant two things. First, it has led to a sharp drop in imports of gold-down 16 per cent over last year. Two, it has prompted gold recycling, with people selling their old-fashioned jewellery to take advantage of the high prices. "It is recycled gold that is making up for the lack of imports," says Arora.

What should be your investing strategy? Wait to see if prices inch up to the Rs 6,500-mark. If they do, offload some of your holding and wait. Once the US stockmarkets pick up next year, gold may start its inevitable descent. Then you can buy back whatever gold you had sold-at lower prices.

-Ashish Gupta

Year Of Bounty
Direct tax collections are set to soar.

FM Jaswant Singh: Making tax history

The economy has to be doing well, folks. For the first time since Independence, the government is set to exceed its own direct tax collection targets. By the end of November this year, the government had pulled in Rs 42,716 crore by way of income and corporate tax, marking an 18 per cent jump, which is more than the budget estimate of 16 per cent growth. At this rate, the finance ministry will exceed its target of Rs 95,714 crore. The total tax collection, too, is cruising. At Rs 1,29,947 crore, the takings represent 49 per cent of the budget estimate of Rs 2,51,527 crore. Small wonder then, the ministry is all smiles.

What caused the surge? As far as corporate tax is concerned, "good corporate earnings and general buoyancy in most industrial sectors of the economy", says a senior ministry official. On the income tax front, "it is again a combination of increased income and better tax compliance", reckons Saumitra Chaudhury, Chief Economist, ICRA. However, there's some cause for concern amidst all the good tidings. Indirect taxes, which include customs and excise duties, grew a modest 9 per cent, netting Rs 87,330 crore during April-November, 2003. The reason is two-fold: One, the government has been lowering import duties, besides rationalising excise duties. Two, the expected jump in international trade did not materialise.

There's some consolation, though. The share of direct taxes in the overall tax kitty is growing by the year-up from 19.1 per cent in 1990-91 to nearly 35 per cent today. The recent surge, therefore, should help in bringing down the fiscal deficit pegged at Rs 1,53,637 crore, or 5.6 per cent of the GDP.

-Ashish Gupta

LNG Springs A Leak
British Gas shelves its LNG plans for India.

Nigel Shaw, CEO, British Gas India: Retired hurt

The churn has started even before the first LNG-carrying ship could reach the Indian shores. In early December, 2003, British Gas (BG) became the first casualty when it pulled out of the $550-million (Rs 2,530-crore) Pipavav LNG project in Gujarat. "The project must be viable in order for BG India to take forward the development,'' explains Nicole McMohan, Director, BG India. Why did BG pull out of the project when until recently it was so confident about LNG's future as alternative fuel in the country? Or more importantly, are these hugely expensive and risk prone projects-LNG Petronet and Shell have already coughed up close to $500 million (Rs 2,300 crore) each for building regassification terminals as well as setting up multi-cargo, all-weather ports-feasible when upstream players like Reliance, Niko, Cairns, and ONGC have already announced huge reserves finds?

For BG India, in a way, it made greater sense to pull out of the Pipavav project and consider the nearly-complete Dabhol project for possible acquisition, rather than invest in a greenfield project. After all, Petronet's LNG terminal in Dahej, Shell's LNG import and regassification terminal at Hazira and Reliance's gas finds in the Krishna-Godavari basin would come ahead of BG India's operations. What's more, big clients such as fertiliser and power companies can tap multiple options for long-term agreements on LNG. "All this had put a serious question mark on the viability of BG's investments," explains Satyam Agarwal, analyst at Motilal Oswal Securities.

What the industry needs is some clarity on LNG prices. Matching ONGC and Oil India's price of $2.50 per million British thermal unit (BTU) is virtually impossible for the new players. That means BG may not be the only LNG player to pull out.

-Ashish Gupta

BJP And Reforms
Will BJP's wins at assembly elections kickstart reforms?

"Disinvestment is caught in a loop. But the fact that the government has asked the Supreme Court to re-evaluate its stance on disinvestment is in itself a good sign."
Ravi Mehrotra/President/Franklin Templeton

"The wins have imbued the ruling party with self-confidence. The message is clear. It shows that development rather than Hindutva can clinch more votes. "
Kirit Parekh/Director & VC/IGIDR

"What this proves is that elections will be fought and won on issues of overall progress and quality of life. The government should accelerate reforms."
Sanjeev Goenka/Vice Chairman/RPG Group

"Industry is strongly confident that reforms will continue, despite 2004 being an election year. I think the election wins also drive home that fact."
Tarun Das/Director General/CII