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Jewellers are keeping their fingers crossed, expecting falling prices and the end of the inauspicious period to buy gold to improve consumer demand for the yellow metal

Economics

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Jewellers are keeping their fingers crossed, expecting falling prices and the end of the inauspicious period to buy gold to improve consumer demand for the yellow metal.

Shradh or Pitru Paksha, a period when many Hindus pay homage to their ancestors and traditionally refrain from buying precious metals, ends Wednesday. The end of this period also marks the beginning of festive buying that peaks around Diwali.

The generic front-month gold futures contract has been falling steadily, from Rs 28,075 per 10 gms on August 28 through Monday's Rs 26,588, after which markets have bounced back a bit on tensions in the Middle East. However, analysts expect the jump of Rs 124 per 10 gms through Wednesday to be a temporary phenomenon, with the price expected to decline to Rs 26,000 or less in the next few months.

"We have been witnessing fluctuation in demand over the last few months," said Shrikant Zaveri, chairman and managing director of TBZ-The Original. "There is a lull prior to the festive season … Customers prefer to buy on the occasion of Dussehra and then up to Diwali.

Zaveri, whose company has 28 stores across 22 cities, said the demand has been muted this year due to depressed economic conditions, although there is hope of a pickup in October, which would likely continue through December.

Citing analyst forecasts for further fall in prices, Zaveri said: "We believe the falling prices will act as an incentive for Indians to buy gold during this festive season."

Reference (https://economictimes.indiatimes.com/markets/commodities/as-shradh-season-comes-to-an-end-jewellers-hope-gold-demand-to-pick-up/articleshow/43321937.cms)

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Required Question:

Read the article and answer the following questions:

1. What are the features of a market that make it perfectly competitive? Name the two most important ones. (200 words)
2. Assuming the market for gold jewelry in India is perfectly competitive, using a graph (as shown in class) describe the effect of the end of the shradh season (as described in the article) on the following: the market price, quantity bought and sold, total surplus.
3. Explain the term market equilibrium. How does the price move from one equilibrium to the next in this example? (200 words)
4. If new gold mines are discovered in India, what is the likely effect on the gold market? Explain.