Bandana Choudhary, a housewife in western Mumbai suburb, has devised a formula for her planned Rs 30,000 annual investment in gold. Unlike earlier, when she was buying gold jewellery for her entire investment portfolio, she has taken out nearly 30 per cent to invest in other forms of gold avenues like coins, bars and exchange trade funds (ETFs).
Many women like Bandana have wisely cut a part of their gold portfolio to invest in new options.
“You always try to shed a part of your gold holding at the time of financial crisis. Atleast 10-12 per cent of the gold price is cut when you sell jewellery as the jeweller never refunds making charges. Also, while selling jewellery you require bill and certificate of purity from the jeweller you bought it from. Otherwise, the jewellery is considered as a stolen piece resulting into further cut in the value of jewellery items. As against that, a bar and coin accompanies certificate and stamp of the retailer which you can sell waiving the premium you paid at the time of buying. So, the loss is minimal,” said Bandana.
Gold has witnessed a gradual shift in consumer preferences over the last couple of years. Investment demand basically in the form of coins, bars and exchange traded funds (ETFs) has been continuously rising at least over the last two years while the most popular, jewellery demand has been declining steadily. This indicates that consumers with risk aversion appetite invest in gold for short term capital gains and book profit at opportune time.
The trend which was widely known overseas until recently, is gradually catching up in India now. Indian’s love for gold was primarily known for long-term holding in jewellery form. But, during the second quarter ending June, India’s gold consumption in jewellery form declined a marginal two per cent to 123 tonnes while investment demand rose seven per cent to 41.5 tonnes according the latest report by the World Gold Council (WGC).
Ajay Mitra, MD, WGC said, “India and the West Asia, however, does not see any shift in consumer’s taste of gold.”
India’s net retail investment off-take totalled 41.5 tonnes in the second quarter, a rise of seven per cent over year-earlier levels. The increase in demand for investment products was primarily driven by positive price expectations among Indian retail consumers. As against that gold jewellery demand in India, the largest jewellery market, was little changed from year-earlier levels.
When considered in light of the record highs in the local gold price reached during the quarter, the two per cent tonnage decline suggests that jewellery demand was surprisingly robust, although on a historical basis second quarter demand of 123 tonnes is relatively low, said WGC data.
Average second quarter demand over the five-year period (Q2 2003 – Q2 2007) was 182.1 tonnes. The Akshaya Trithiya festival in the first week of May helped to buoy jewellery demand, as this is considered a highly auspicious time for buying gold. However, the high price took its toll in June and demand tailed off as consumers preferred to wait for less volatile price moves.
The same trend is catching up globally also. Identifiable investment more than doubled in the second quarter of 2010, compared with the same period a year earlier, largely on the back of a surge in ETF demand. Investors bought a collective 291.3 tonnes of gold in the ETFs that the WGC monitors, the second largest quarterly inflow on record. This brought total gold holdings to a new high of 2,041.8 tonnes, worth $81.6billion at the quarter-end. As at the end of July, demand for the ETFs had increased by 253 tonnes since the beginning of the year, of which 90 per cent occurred in May and June. Net retail investment (i.e. global retail bar and coin demand) of 243.1 tonnes was 29 per cent above Q2 2009 levels.
Global jewellery off-take was a fraction under 409 tonnes during the second quarter, 5 per cent below year-earlier levels as consumers across the globe responded to the surging price level. Losses were widespread and only five countries witnessed an increase in jewellery demand.
This was the smallest decline in the rolling four-quarter performance since the first quarter of 2008, indicating a deceleration in the pace of decline in global jewellery demand.
WGC reported total identifiable gold demand in the second quarter of 2010 amounted to 1,050.3 tonnes, 36 per cent up on Q2 2009 levels.
