Gold, silver safe havens of investing

Rajan Ramakrishnan, who worked for over 30 years with a UAE power utility, is settling down in his hometown in Kerala. He has refurbished his home, bought an SUV and started a small bakery and coffee shop. He has invested in Post Office Savings Scheme, put some money in mutual funds, and bought health and pension plans. However, Rajan and his wife, Parvathy, are worried about low returns from bank deposits. They are also concerned about risks associated with mutual funds. Their two daughters, 19 and 21, are studying in Canada and England, respectively. Their next dream is the grand wedding of the daughters. “Gold and jewellery will cost at least 20-30% more when they wed after three-four years,” says Rajan.

So, when Covid-19 second wave was at its peak and prices of gems and jewellery were crashing, he invested in a gold and diamond plan of a leading gems and jewellery chain. He will pay instalments for three years and on maturity can buy jewellery and diamonds at prices prevailing at the time of enrolment. “It is a good bet from savings point of view,” he says.

Like Rajan, numerous people in India are looking at gems and jewellery and other precious metals as a long-term investment option. With returns from traditional investment avenues such as mutual funds getting riskier and fixed deposits yielding little, the trend will increase, say experts.

A Safe Haven In Uncertain Times

“Gold jewellery has dual benefits. It is a beauty product as well as store of wealth. Gold is perceived as a strong hedge against inflation and has always been a very liquid asset. Covid-19 has, in fact, reinforced consumers’ trust in gold as a safe investment as, in hard times, it can be easily exchanged for cash,” says Colin Shah, Chairman, Gem and Jewellery Export Promotion Council.

Data from the World Gold Council (WGC), which tracks global gold and jewellery sales at wholesale level, confirms this. Despite the economic turbulence unleashed by Covid-19, jewellery demand in India rose from 117.9 tonnes, valued at ₹45,580 crore in first half of 2020 to 157.6 tonnes, valued at ₹66,850 crore, in first six months of 2021, a 34% increase in volume and 47% in value. Demand for gold as an investment grew from 47.9 tonnes, valued at ₹18,600 crore, in first six months of 2020, to 58.5 tonnes, valued at ₹24,840 crore, in first half of 2021, a rise of 22% in volume and 36% in value.

Globally, investment by individuals in bars and coins (one-kg and below gold bars and gold bullion coins) rose 4% to 899.5 tonnes in 2020 from 866.6 tonnes in 2019, despite lockdowns. Gold exchange-traded funds (ETFs) and similar products which can be traded on stock exchanges grew an unprecedented 114% from 407.9 tonnes to 873.8 tonnes in 2020. Over-the-counter trading and exchanges account for most gold trading volumes. In 2020, average daily trading volume on spot and futures exchanges was $69.3 billion, while gold ETFs’ average trading volume was $3.3 billion. India’s contribution was just $1.2 billion and $3.4 million, respectively, as Indian investors are yet to enter this market in a big way. However, India’s gold ETF holdings increased 30% to 35.1 tonnes in Q3 of 2021, from 27 tonnes in the year-ago period.