It?s a rare role reversal for the gold-loving Indians. Traditionally the world?s largest buyers of jewellery, Indians are now shifting allegiance to gold bars, coins and exchange-traded funds purely for investment purposes, as a more affluent middle class with better economic sense is edging out the rural poor to paint gold?s evolving landscape. At stake is decades of tradition, but gold will still be shining.
Although the jewellery segment still accounted for around 56% of Indians’ total gold purchases in the second quarter of the calendar year 2011, compared with 44% of investment products, experts say it?s not too far before the tradition loses its battle to dynamics of economics.
The share of investment-related gold products in overall purchases improved dramatically from 34% in the second quarter of 2010, according to the World Gold Council data.
Purchases of gold bars, coins and ETFs in the quarter through June shot up by 119% in value from a year earlier, compared with a 44% increase in jewellery buying during the period, said the Council data. The contrast is even more pronounced in volume terms–a hefty 78% jump against a 17.1% rise in jewellery purchases. ETFs are the investment instruments that trade like shares but are backed by physical holdings of the item. The country currently has eight gold ETFs with a total collection of more than 15 tonne — a 57% rise from a year earlier.
?Jewellery purchases have traditionally been the mainstay of the rural demographic segment, with consumers outside urban areas lacking access to other channels of gold buying. As prices have risen over the last few years, many of these rural buyers have been priced out of the market,?Ajay Mitra, the managing director (India & Middle East) of the World Gold Council, told FE.
?By contrast, urbanisation and growing wealth have spurred increased gold investment product interest among the emerging middle classes,? he added. India–which holds the world?s largest gold stocks–accounted for 32% of the global demand in 2010. Indian households alone have around 18,000 tonne of gold in stocks, which will roughly translate into a reserve in excess of R48,30,000 crore at current prices–around 70% of the country?s economy size.
Gold prices in India scaled a fresh peak of R26,840 per 10 grams in Delhi, with a gain of R580 in the past two trading sessions, responding to firm international trends. Global gold futures prices soared to as investors vie for haven assets following the cut of the top credit rating for the US by Standard and Poor?s. Gold prices have risen by more than 25% globally in 2011, compared with a 15% loss in the US blue-chip stocks, underscoring investor’s frenzy for safe assets.
With the rise of the middle class due to more than a decade of robust economic growth and higher disposable incomes, investment in gold bar and coins is going to increase in the coming months, said a senior official with MMTC , the country’s top gold importer. India accounts for more than one-fifth of global gold demand.
?People are preferring gold bars and coins as you can sell it without having to lose money in the form of hefty making charges you would otherwise pay for jewellery,? said a Delhi-based jeweller. ?Moreover, those who don’t need jewellery immediately but feel gold prices may surge later will prefer bars and coins,? he added.
