Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

INVESTMENT DIMENSION
In a country where there is widespread poverty, no social security net, an underground economy, and a
vulnerable currency alongside exchange control, gold jewellery has been viewed as an important family
investment for decades.
As an investment, gold jewellery acts mainly as a “store of value”. It is easy to buy and sell close to the value of its gold
content. It is accepted as “money” everywhere. Its rupee price has normally kept pace with, and exceeded, the rate of
inflation over the long term. It is portable and easy to store. It is a discreet asset.
The investment dimension is important for most women because much of the family’s jewellery is generally viewed as their
personal property. For many married women, it is the only valuable asset they own.
The investment dimension is also important to men. Jewellery enables fathers to provide some financial security for their
daughters at the time of marriage. For most brides, it represents their inheritance. Within the family, husbands often
prefer to give gifts of gold jewellery, and to encourage their wives to buy jewellery rather than ephemeral items, because
the family’s overall wealth is enhanced.
Gold jewellery can be used to secure loans. Thousands of banks, co-operative banks, moneylenders and pawnbrokers accept
gold jewellery as security, normally 50 - 60% of the value of gold content. For many people, pledging gold jewellery is the
only way to obtain a loan. The amount pledged nationally during the 1980s was registered at around 60 tonnes. There is
now no official record, but it might exceed this level several times.
Gold jewellery can be sold to cover emergencies. Among small farmers, it can be sold to cover family and other costs when
agricultural income is low.
It is also used to absorb “excess money”, a term commonly used. The poorer population has limited access to banks, while
many others distrust banks or prefer not to use them.
Investment-related observations
GOLD JEWELLERY CONSUMERS
Static rupee gold price
Since 1998, the investment dimension has weakened. A static annual price for 4 years until late 2001 did not keep pace
with inflation. Over the previous 26 years, in all but one (1982), the price had increased every year. Consumers were not
resistant to paying higher prices over this period as an annual price increase was “guaranteed”. Many consumers appear to
be more sensitive to higher gold prices. They distrust volatile spurts, and have lost some faith in the role of gold as a
long-term investment.
Competition
For many consumers, increasing access to bank deposit accounts, the share market, life insurance and pension funds has
reduced gold jewellery’s investment role.
Encouraging factors
Although the rupee gold price has been static in recent years, gold jewellery retains its residual advantage as a discreet,
tradable and wearable asset. Many people have also lost heavily on Indian share markets and in property investment in
recent years. The underground economy is expected to endure for many years. Many retailers stress that now is the time
to emphasise, in an appropriate way, the advantages of owning gold jewellery for store of value and savings purposes.
TRANSACTIONS
A common retailer estimate is that more than 70% of all jewellery sold is marriage-related.
Transactions fall under 3 broad categories.
• Gifts of bridal and other jewellery at the time of weddings.
• Other gifts of jewellery within the family.
• Personal purchases.
Retailers observe that much jewellery, bought as “other gifts” and for personal purposes, is much influenced by a family’s
need to accumulate gold for their daughter’s wedding, and to enhance the personal wealth of married women.
In joint-families, and in many nuclear families, most purchases are the outcome of a family decision. Men play an
important role. They tend to determine or agree the choice of retailer and the amount to be spent. They can also
participate in choosing bridal and other jewellery.
For many families, buying jewellery is a social event. When bridal jewellery is bought, the presence of 10 or more relatives
is not uncommon. For other purchases, a small group of relatives or close friends tends also to be present.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET