In a nation that has had a legendary love for gold, financial advisor Biju Daniel is one of scores of Indians rethinking how to amass riches through the precious metal.
Daniel’s wife owns at least a kg of jewellery and he sports a gold watch. But he is also shrewd enough to realise the world’s biggest gold consumers are falling out of love with wearing their wealth, preferring to stock on coins, bars and bullion-based investment funds as they look for returns safe from the ravages of inflation and the dictates of fashion.
“The current generation is not serious about gold. They have bangles but they don’t wear them,”Daniel, of Shreyas Investment Services, said. “My wife has about one kilo of gold jewellery but my daughters are not interested.”
Demand for gold bars, coins and other pure investments soared 83 per cent in 2010 from the year earlier to 349 tonnes, according to precious metals consultancy GFMS. The amount of gold used in making jewellery rose 36 per cent to 685 tonnes.
SOLID INVESTMENT
Overall, gold buying jumped 38 per cent in the second quarter, compared with a year ago. Global gold prices have risen 29 per cent in 2011 and hit a record $1,920.30 per ounce on Tuesday. India’s domestic gold prices have climbed 33 per cent and touched a high of Rs 28,744 per 10g on Tuesday.
With India’s inflation nudging 10 per cent and the central bank’s key lending rate at 8 per cent, domestic deposits and fixed-income investments are looking especially vulnerable, and the Bombay stock market has fallen 16.5 per cent this year. “If you look at interest rates, in real terms they are still negative, so investors will definitely look at gold,”said Gargi Shah, metals analyst with GFMS.
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BISCUITS VS BANGLES
World Gold Council data for the second quarter of 2011 shows Indian investment demand rose 78 per cent on a year ago to 108.5 million tonnes, while jewellery demand rose 17 per cent to 139.8 million tonnes. In China, the biggest gold consumer after India, jewellery demand rose a comparable 16 per cent in the quarter and investment demand grew by 44 per cent.
Unlike jewellery, investment gold retains its value better because fabrication costs are significantly less and buyers don’t have to worry about their pieces becoming dated, making these harder to sell.
R.C. Joneja, manager of a jewellery shop in New Delhi, says it costs about Rs 1,000 to make a 10 gram “biscuit”, a bar about the size of a credit card, while manufacturing a jewellery piece of similar weight would cost three times as much. “Customers prefer to buy these if it’s only for investment,”he said, displaying a coin and a biscuit.
“But if someone wants to buy jewellery, they will definitely still buy jewellery.”
PAPER GOLD
While owning physical gold may now have become harder at such high prices, Indians are snapping up “paper gold”, funds like those that financial adviser Daniel sells for a minimum monthly payment of 100 rupees.
Such small requirements are another attraction for paper gold investments in a country where 42 per cent of the population have barely enough to eat and Rs 15,000 a month makes you middle class — while a simple signet ring costs Rs 20,000.
“Investing in gold has become affordable,”says a flyer for the SBI Gold Fund, which closed its offering on Monday.
Reliance Capital’s gold exchange traded fund (ETF), India’s third-biggest gold fund, has more than trebled the number of its investors since March, and people are investing in it through online routes as well as in person.
Despite prices already higher than they have ever been, gold is still proving a worthwhile investment.
Funds that invest in gold were the top performers in August in India with gold exchange-traded funds (ETFs) garnering returns of 15.2 per cent, data from tracker Lipper showed.
“Absolutely, you will see this kind of trend continuing,”GFMS consultant Shah said of the investment appeal of gold over jewellery.
“We won’t see the reverse unless there’s a change in the gold price trend.”
At Mumbai’s Zaveri Bazaar, a warren of jewellery stores that is also the hub of India’s bulk gold trade, businessman Sanjay Darji is betting on gold remaining a sound investment as he stocks up on coins.
“I bought one, two and eight gram coins for investment purposes. The thing about coins is quality is assured, unlike jewellery,”Darji said. “It’s better than keeping idle money at home.”