The highs & lows of 2011

CommoditiesFeatureWorldEconomyMarketsSamar Khan, Bloomberg UTV.

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Highs and lows for the year gone by

Amidst the seesaw ride that had stocks alternately soaring and diving day after day during 2011, gold and silver remained constantly in spotlight for their record-breaking uptrend. Investors considered precious metals as a 'safe-haven investment' in times of economic turmoil and rising inflation.

The yellow metal, which is seen as a hedge against both market disruptions and inflationary monetary policy, crossed the Rs 29,500 per 10 grams-level to a historic high of Rs 29,540 on December 8, 2011.  Marriage season demand coupled with investment buying due to weak equity markets, helped gold to surpass its previous peak of Rs 29,490 per 10 grams, set on December 2, 2011.

In a similar fashion, silver prices hit an all-time high of Rs 75,020 per kilogram on April 25, 2011, reflecting strong investment-driven buying in line with global markets, where the metal advanced to a fresh 31-year high. Supply shortage speculation, launch of E-silver by the National Spot Exchange Ltd ( NSEL) boosted a global rally in silver.

Other than achieving two landmark levels on the positive front in the year gone by, asset classes relentlessly plummeted to new lows one after another. Investors saw around Rs 20 lakh crore of their wealth eroded, as Indian equities tanked in 2011 because of inflation, high interest rates and the uncertain global growth environment accentuated by the euro zone debt crisis. The stock market recorded its first annual fall in three years, with the Sensex and Nifty, closing the year nearly 24 % lower.

 Sustained demand for the dollar, worsening domestic economic scenario and persistent capital outflows pushed the rupee to historic lows against the US dollar. Towards the end of the year, the rupee fell to its all-time low of to 54.30 on 15 December, elevating concerns of policy makers. On the last day of the year (30 December) the rupee closed at 53.10 to the greenback, down over 18% from the first day of the year.

On the macro front, India’s GDP growth dropped to a two-year low of 6.9% in the September quarter. Inflation remained persistently high at 9%, wherein the Wholesale Price Index (WPI) touched a high of 9.78% in August.

To counter rising inflation, the Reserve Bank of India (RBI) raised interest rates six times by a total of 225 basis points (100 basis points is 1 percentage point) in the year. The repo rate now stands at 8.5% and base rates for the largest private and government-owned banks are close to 10%.

The blow of a series of rate hikes was seen at various levels. According to October figures, the Index of Industrial Production (IIP) contracted by 5.1%, the worst fall since March 2009.