India’s centuries old Gold industry is the largest market for this metal in the world, with imports catering to almost all our needs for jewellery and investment. India’s annual consumption of Gold is as high as 700 tonnes. Our market has traditionally been a market for gold as jewellery, which draws its significance from religious and wedding events and also from the fact that there is a market where more than 300,000 jewellers, mostly small, family-run businesses (a report by World Gold Council) operate.
A Brief History
Gold prices have fluctuated in the economy like the stock market. In 2008, gold prices went up an all-time high. The imports also plummeted due to an increase in prices and the consequent fall in demand for the metal. There was a decline of 47% in the gold imports that year. However, in 2009, the gold prices slumped, raising concerns among the investors.
Over the last few years, gold has been shining continuously. The price has remained well above Rs.18000 per 10g. In fact now, over the past few months, it has been more that Rs.20000 per 10g.
Despite the high prices, the demand and hence the imports have not been affected as much as they had been in history. Prosperity and higher saving resulting from higher per capita income of Indians are factors driving them to change their perception of gold. With increased per capita incomes of the citizens, the country is able to save more than before. The Indian economy is seeing a growth of about 8% and in 2008 recorded a per capita income rise of more than 10%, according to government data. On an average, Indians save over 30% of their income. This gets reflected in the improvement of investments in gold.
Trends in Investment
Over the recent years, investors have closely observed the pattern of gold prices. The prices have not disappointed them either. They have become surer that investment in gold is the safest and most profitable option right now. Considering the fact that gold has been on a consistent rise, investment in it provides a kind of insurance cover sure to give good returns!
Traditionally considered compulsory and to a great extent auspicious, Indians no longer buy gold in the form of jewellery only. This is especially true in the case of investors. The trend has shifted from investment in gold jewellery to investment in gold bars or coins. One of the reasons for this preference can be fashion criteria. Jewellery tends to get out of fashion soon. A piece of necklace that catches our eye today may not seem attractive at all 5 years down the line. Hence, bars and coins are bought which can easily be converted into jewellery when needed.
Another perspective to this jewellery demand v/s investment demand is their significance according to the social or economic conditions. While jewellery demand will be societal and festival related, investment demand for gold is generally price sensitive.
In a recent development, for the first time, Indians converted proportionately more gold into investment than into jewellery. In the quarter that ended in March 2010, percentage net retail investment in gold by Indians has soared past that in jewellery, highlighting the biggest change in the way the yellow metal is used in India.
Considering the economic part of it, taking loans against gold is another fruitful option. Going by the current gold prices, an estimated Rs 30 lakh crore is out of the financial system, which could be put to productive use. Experts say when people borrow against gold, it can set a chain of productive economic activities and boost demand and consumption in the economy. Banks and NBFCs give loans from 60% to 80% of the total value of gold and can disburse the amount in a day’s time.
So, all in all, investment or taking loans, gold is shining brighter than before and is a safe haven for all-consumers or investors.