(Image source: pixabay.com; Image credit: MITA Chatterjee Maitra)
Gold has a central role in the country's culture, considered a storehouse of value, a symbol of wealth and status, as well as a fundamental part of many rituals. It is believed to be highly auspicious to buy gold during Festivities (Akshay Tritiya, harvest season, Dusshera, Dhanteras in Diwali, etc.) and for personal life events as well like the birthdays and weddings.
During my childhood days, it would fascinate me to see my dad buy gold on account of Diwali. When I grew up I asked him curiously.
'Why do we buy gold on Dhanteras and worship it?'
He explained, 'Dhanteras also called Dhantrayodashi, marks the first day of Diwali and is one of the most ausipicious muhurats to start something new and per religious beliefs, buying gold is seen as a symbol of wealth and prosperity.
The five-day Diwali celebrations involve illuminating the household with decorative diyas (oil lamps) or candles, hanging up handmade kandils (lanterns), streamers of fairy lights, grand display of fireworks and crackers to signify the elimination of darkness and movement towards light; hope over despair; good over evil; and knowledge over ignorance.
And when we begin something new, we worship gods by performing puja. So we buy gold for its auspiscious muhurats and its referred to as wealth (dhan- also implies Goddess Laxmi as per religious beliefs), so as a mark of respect we do worship it as well.'
Since then, even I started buying gold and realised in India, Gold and festivals go hand in hand, especially during Diwali on Dhanteras. Most people in India, from all walks of life, be it from rural or urban, small villages or large modern cities buy gold for it is deeply rooted (as auspicious) in the Indian culture, particularly in Hindu and Jain cultures.
Gold purchases are driven by tradition, festivals and other important family and societal occasions. For instance, gifting gold is a deeply ingrained part of marriage rituals in Indian society-weddings generate approximately 50 percent of annual gold demand.
As per the World Gold Council report, there are two significant factors to impact Indian gold demand over the long run. Rising income is the most powerful factor that has a positive effect and higher gold prices have a negative effect. Over a short-term period, gold demand is spurred on by inflation, rises with a good monsoon, and is subsequently dampened by higher import taxes and other restrictive measures.
Image: Factors influencing gold demand in India
(Source: World Gold Council)
Speaking specifically of India (the second-largest consumer of gold), gold investment is mainly through retailing in the form of jewellery, gold coins, and bars.
As per WGC report in 2015, India bought 663t of gold jewellery, second to China, but comfortably ahead of the US, Europe, and the Middle East combined.
Crucially, over and above other metals, gold jewellery is viewed as an investment (bars and coins) as well as an adornment-for marriages, and gold jewellery demand tends to peak in the run up to the wedding season.
Not just in India, Gold has always been a mark of wealth, carrying immense value across the globe. And lately, it's worth has increased manifolds on the backdrop of uncertainty looming... Gold basically helps deal with systemic risk, during stressful times.
Gold as an asset has a negative correlation with other assets during risk-off periods, protecting the investors 'capital against tail risks and other events that have an adverse impact on capital or wealth. This safety of capital is not present in other commodities or assets.
Hence Gold is also considered to be a safe haven or a store of value in times of economic uncertainties...
✓ Trade war tensions between the US and the other economies
✓ A slowdown in global trade growth (lowest since the last ten years)
✓ Subdued global economic growth (slowest pace in the last three years)
✓ Frail investment growth (particularly in advanced economies)
✓ Upside risk to retail inflation
✓ Pause in rate hikes by the US Federal Reserve
✓ The ECB open to fresh stimulus measures
✓ Delay in Brexit, drop in the value of Pound, and the leadership battle that followed after Theresa May's resignation
✓ Geopolitical tensions
✓ And of course the rise in gold prices
The precious yellow metal is looked upon as an important strategic asset class, and central banks have added it to their reserve. Diversification and a desire for safe, liquid assets are the main drivers of buying, states the WGC.
And in India, the falling rupee against the US dollar, slowdown blues, sluggish consumer demand, rising crude prices, upward pressure on the trade deficit, and the possibility of fiscal deficit getting breached, is encouraging the RBI to add more gold to their reserves.
[Read: How Gold ETFs Have Rewarded Investors Handsomely Over the Last One Year]
Due to global demand in gold, the prices surged and demand for consumers in India slumped --purchase of jewellery. India's gold imports (world's second-largest consumer of gold) slumped to a 3-year low to 13.5 tonnes (t) in September 2019 from 14.8 tonnes (t) in the previous month, said a government source speaking to media.
In US dollar terms (on LBMA Gold AM fixing) as well, gold sunk below the US$ 1,500 per troy ounce, posting an absolute gain of -2.6% on a month-on-month basis.
In September 2019, the precious yellow metal gold lost its sheen a bit as price per 10 gram of gold lowered to Rs 37,475 registering an absolute return of -2.4% on a month-on-month basis. Gold remained muted even during the 10-days Ganapati festival as elevated prices, almost Rs 40,000 levels, discouraged gold buying. And thereafter during the inauspicious period of Shradh or Pitru Paksha (from September 13, 2019 to September 28, 2019), it was quite dull.
[Read: Why Dumping Gold ETFs Now Is Stupid!]
WGC has projected India's gold consumption in 2019 in the range of 750-850 tonnes versus 760.4 tonnes last year. Over the last 10 years, India's average demand has been 838 tonnes.
The long-term secular uptrend exhibited by gold is something that invites attention and highlights the importance of owning gold in the portfolio with a longer investment horizon. However, one can't eliminate the apprehensions of slower global growth, which continues to plague the overall economy, will provide support to inflated gold prices.
Graph: Gold will continue to shine...
Data as of October 18, 2019
(Source: MCX)
Investing in gold vide paper form can prove to be more effective. One should consider allocating at least 5-10% of your entire investment portfolio to gold and holding it with a long-term investment horizon will prove to be sensible and a smart investment strategy.
Avoid a speculative approach while investing in gold. Look at it as a portfolio diversifier and a monetary asset (rather than a mere commodity), which can help you reduce risk to your overall portfolio with its trait of being a storehouse of value in times of uncertainties. Ideally, invest in gold with a longer investment horizon.
If you invest through Gold Exchange Traded Funds (ETFs) or Gold savings funds, you can actually tangibly hold gold without facing any storage concerns or worries about theft.
Go ahead and buy gold this Diwali!
Wishing You A Happy Diwali!
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