It always glitters. And now it has zoomed. If you are planning to buy gold this Diwali as a traditional practice be prepared to pay around 20 per cent more than last year and double the level during the festive season in 2007.
Now at Rs. 19,300 per 10 grams for the standard variety, gold was Rs. 16,000 just a year ago. Though global economic instability and currency problems have hoisted gold up, there is no let-up in the appetite for gold in India – some for traditional reasons and some because it has emerged as a modern investment option.
The World Gold Council says India’s demand for gold rose 22% to 755 tonnes in the year ended June 2010. The council expects India and China to be the big demand drivers for the world.
“The demand for gold is expected to grow in the range of 23-24 per cent annually and jewellery will be major driver for growth of gold demand,” Ajay Mitra, managing director for Middle East and India, World Gold Council, told HT. And the prices too are expected to rise, says the body.
“Gold price has risen at an average of 24-25 % over the last 4-5 years. I expect price rise to be in the range of 21-24 per cent over the next few years,” said Mitra.
Though stocks and bonds are catching the fancy in urban areas, there is a hinterland in India that still thinks the old-fashioned way.
“Semi-urban and rural Indians are not financial market savvy and for them real estate and gold are the two big asset classes to invest. With higher growth, consumerism will rise even more in rural India,” said Vikrant Gugnani, executive director, Reliance Securities.
The emergence of exchange traded funds (ETFs) that help you buy gold as dematerialised units at smaller budgets and hold it like a mutual fund has triggered a new wave of demand.
“The price rise is not impacting demand as people who are buying now are long term investors and they are investing at a steady pace,,” said Rajan Mehta, executive director, Benchmark Asset Management, which runs a gold ETF.
“People who invest through systematic investments do not care about price,” he said. Bharagava Vaidya, a gold expert, notes that the good monsoon this year is further fanning rural gold demand this year.
Despite the hunger, the per-capita consumption of gold in India currently stands at just one gram, much less than the 4 grams per person in the Middle East and Japan. Mehta said higher overall savings in the economy will find a part of it going into gold.
There are several options to invest in gold, such as jewellery, coins and exchange traded funds. Some mutual funds also combine equity or debt with gold.
“Ideally the exposure to gold should be around 5 per cent of the total assets and investing through mutual funds that combine gold as an instrument may offer better return as the funds can trade gold ,” said Surya Bhatia, a Delhi- based financial planner.“Though demand from retail investors is growing rapidly, the base is comparatively small,” said WGC’s Mitra.
In other words, the gold may be on an even stronger wicket than before.