Here’s What Led Gold Lose Its Festive Sheen    Oct 04, 2017

Stricter rules are now making a dent in the gold sales.

A season which otherwise keeps jewellers extremely busy, is making things difficult for them this year.

Mr Nitin Khandelwal, Chairman, All India Gems & Jewellery Trade Federation (GJF) couldn’t hide his disappointment. He said, "Sales are down 50 per cent though we had expected some good demand this Navratri and Dussehra. As things stand today, we are not sure whether the trade will be able to make good business in the current festive season. The high-value gold sales are not happening."

Mr Joy Alukkas, Chairman of Joyalukkas, expressed similar views saying, “High-value sales are not happening. We are therefore focusing on small pendants, small earrings and other such items. The KYC norms will affect sales during Dhanteras, when Indians splurge on gold."

Why did gold sales slump?

The Government issued a deterring notification on August 23, 2017 on gold trade applicable with immediate effect. Directorate General of Goods and Service Tax Intelligence was set up as the regulator for the gems and jewellery industry to handle money laundering cases. Jewellers with an annual turnover above Rs 2 crore in a financial year came under the purview of the Prevention of Money Laundering Act, 2002 (PMLA, 2002).

Jewellers were expected to follow the Know Your Customer (KYC) norms. They were expected to maintain records for all cash sales above Rs 50,000, and for customer not having a PAN card or whose income is below the taxable limits, a Form 60 (a declaration) for purchases above Rs 50,000 needed to be furnished.

“The outlook is not very positive for the ongoing festive season" expressed Mr Khandewal.

So, has gold lost its appeal?

GST regime would only cause short-term disruptions for gold. This view is even conveyed by the World Gold Council (WGC) in its report released on July 6, 2017, where it stated: “In the short-term at least, we believe (the tax) may pose challenges for the industry. Small-scale artisans and retailers with varying degrees of tax compliance may struggle to adapt.”

However, the WGC is positive on the long-term impact of GST on the gold industry. It has said the industry would undergo a period of adjustment, but the net impact will be positive. Further, it has opined, “GST will bring greater transparency to the supply chain, and bring more of the gold market into the formal sector.”

The WGC has maintained India’s full year demand forecast anywhere between 650 tonnes and 750 tonnes in 2017. “Over time, we anticipate that economic growth and greater transparency within India’s gold market will push demand higher: by 2020 we see Indian consumers buying between 850 tonnes and 950 tonnes,” the report says.

Currently there are compelling reasons to invest in gold…

  • Geopolitical tensions have amplified (North Korea continues to test bombs and missiles into the Pacific Ocean. It even test fired a missile over Japan. India too encountered a state of worry and urgency from Chinese troops at the border, and Naga insurgents along the India-Myanmar border. The situation in the J&K valley is tension);
  • There are doubts about the Donald Trump’s untested policies;
  • The Federal Reserve has refrained from hike interest rates aggressively;
  • The Brexit process is underway;
  • China’s macroeconomic indicators are wobbly; and
  • India’s economic growth rate is dwindling after demonetisation and shoddy implementation of GST

During such times gold would continue to exhibit its trait of being a safe haven. Hence take refuge, and gold would continue to perform well until uncertainty prevails and the central banks of the world continue to adopt easy monetary policy stance. In fact, sensing the systemic risk involved, even then central banks across the globe aren’t taking any chances. Most have increased their gold reserves, while many others are maintaining their positions.

Remember, the precious yellow metal as an asset class is an effective portfolio diversifier and a hedge. The long-term secular uptrend exhibited by gold, is something that invites attention and highlights the importance of owning gold in one’s portfolio with a longer investment horizon.

Therefore, as and when prices drop, start accumulating gold at regular intervals and don’t just purchase it on auspicious days. Ideally, gold should comprise to 10%-15% of your total investment portfolio and you must hold it with a long term investment horizon. Smart ways to invest in gold are:

✔ Gold Exchange Traded Funds (Gold ETFs)
✔ Gold Savings Fund
Sovereign Gold Bonds

And avoid speculating in any form; it can be hazardous to your wealth and health. Approach gold as an effective portfolio diversifier, which can serve as store of value or a safe haven in times of economic uncertainties.

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