Is gold a dead investment? The Indian gold buyer does not believe so. The Indian penchant for the yellow metal needs no elaboration. While gold as an investment may have had poor returns, there are no brakes on the Indian jewellery buyer. According to data from Goldprice.org, gold has given negative returns, falling 11% in the last one year. Even the long term 5-year return of negative 9.27% is indeed very dismaying, especially given the buoyant returns on the Indian equity benchmark Sensex.
A World Gold Council report said that the Indian purchases for the gold jewellery in the first quarter of 2017 accounted for a little over a fifth of world jewellery demand. The gains in demand were concentrated in India, Iran and the US, offsetting the global weakness to support Q1 gold jewellery demand at 480.9 tonnes. This is in sharp contrast to India’s proportionate share of global GDP which is 2.99%, according to an IMF report.
During the first quarter of 2017 (Jan-Mar), India’s demand for gold jewellery was 92.3 tonnes, compared to 22.9 tonnes for the US. Investment demand for gold in the form of bars and coins was 31.2 tonnes in Q1 2017, compared to 16.2 tonnes for the US. In demand for gold, India trails only China which bought 176.5 tonnes of the precious metal in Q1 of 2017. India and China together account for over half of the entire world’s gold consumption.
Earlier this year, Metals Focus posted a positive outlook for the gold price for the rest of the year 2017. This was premised on the expectation that most of the factors that underpinned the price of the yellow metal at times during 2016 will remain in place over the rest of this year. In turn, this should result in a second consecutive year of strong institutional investment as well as healthy demand for bars and coins.
The report went on to say that the physical investment globally would rise by nearly 5%. China will again be the largest growth contributor, as the desire for safe haven assets amid macroeconomic uncertainty will continue to favour gold.
With the implementation of the GST in India, gold prices have risen marginally, with the metal currently trading at Rs 28,877 per 10 grams, but will it be enough to stave off the average Indian jewellery buyer?