In a nation whose love for gold is legendary, financial
adviser Biju Daniel is one of scores of Indians who are
rethinking how they amass riches through the precious metal.
Daniel's wife owns at least a kilogram of jewellery and he
sports a gold watch. But he is also shrewd enough to realise that
the world's biggest gold consumers are falling out of love with
wearing their wealth, preferring to stock up 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, told Reuters in his basement office, after wrapping up
an offer to clients of the SBI Gold Fund as an investment.
"Look at college campuses, Indian girls there are not
interested in gold jewellery. My wife has about one kilo of gold
jewellery but my daughters are not interested."
Demand for gold bars, coins and other pure investments in
India, Asia's third largest
, soared 83 percent in 2010 from the year earlier to 349 tonnes,
according to GFMS, a precious metals consultancy that is part of
The amount of gold used in making jewellery in 2010 rose 36
percent to 685 tonnes -- giving investment demand 34 percent of
total buying, up from 28 percent in 2009.
"Gold has come a long way from being a jewellery item to an
," said Gnanasekar Thiagarajan, a director with Commtrendz
"Investment demand could surpass jewellery demand in the next
two to three years," he said.
Indians' passion for gold dates back centuries and the country
is home to one of the world's oldest -- albeit now largely
defunct -- mines.
Gold, the ultimate status symbol, is also the gift of choice
at celebrations, and jewellery stores across the country heave
with customers in the run-up to festivals and the traditional
wedding season in a country where brides are often weighed down
with the wealth their parents give them.
Overall, gold buying in India jumped 38 percent in the second
quarter compared with a year ago, as soaring prices simply
fuelled perceptions it was a smart investment as worries about
the global economy deepen.
Global gold prices have risen 29 percent in 2011 and hit a
record $1,920.30 per ounce on Tuesday. India's domestic gold
prices MAUc1 have climbed 33 percent and touched a high of 28,744
rupees per 10 grams on Tuesday.
With India's inflation nudging 10 percent and the central
bank's key lending rate at 8 percent, domestic deposits and
fixed-income investments are looking especially vulnerable, and
the Bombay stock market has fallen 16.5 percent 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.
"Investment demand has literally exploded."
BISCUITS VS BANGLES
World Gold Council data for the second quarter of 2011 shows
Indian investment demand rose 78 percent on a year ago to 108.5
million tonnes while jewellery demand rose 17 percent to 139.8
, the biggest gold consumer after India, jewellery demand rose a
comparable 16 percent in the quarter and investment demand grew
by 44 percent.
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 them
harder to sell.
R.C. Joneja, the white-haired manager of a jewellery shop in
New Delhi's central Janpath district, says it costs about 1,000
rupees ($21) 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."
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 (about $2).
Such small requirements are another attraction for paper gold
investments in a country where 42 percent of the population have
barely enough to eat and 15,000 rupees a month makes you middle
class -- while a simple signet ring costs 20,000 rupees.
"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 (
), 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 percent, data from tracker Lipper, a ThomsonReuters company,
"Absolutely, you will see this kind of trend continuing," GFMS
consultant Shah said of the investment appeal of gold over
"We won't see the reverse unless there's a change in the gold
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
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."