COVID-19 hits India is struggling, leaving millions and millions unemployed. However, Sachin Rana, who runs a jewelery stall in New Delhi’s Malviya Nagar market, says sales have increased since the lockdown ended. After months of isolation, consumers were eager to explode during a festive Diwali in November. A bumper has followed the wedding season, creating plenty of occasions to wear jewelry or give as gifts.
The epidemic has proved that “Indians will never stop buying gold”, Mr Rana said. Strong demand for pendants and parties pushed bullion sales to record highs in the last quarter of 2021, according to the World Gold Council, an industry body that has tracked usage since 2005. The Indians collected about 340 tons of gold during this period , Equivalent to the weight of five healthy Indian elephants per week.
India’s special relationship with gold must have preceded that of Kovid-19. It is the second largest market in the world for yellow metal after China, although it produces almost nothing at home. It is partly driven by tradition. Jewelry is given as part of the bride’s dowry and buying bulls at certain religious festivals is considered auspicious. It’s a simple treasure trove of undeclared assets, often hidden in a wardrobe or under a mattress.
But the epidemic also confirmed an investment advice passed down from generation to generation: Park Savings in Gold as a Rainy Day Fund. In the last two years, many families have completed the sale of jewelry, ornaments, bars and coins in pan shops and informal markets. Others have borrowed in exchange for goods. The three largest non-bank financial institutions providing gold lending grew their assets by 32%, 25% and 61% per annum in 2020, respectively. The appeal of gold as a safe haven is only growing: as tensions rise in Ukraine, its price is approaching record highs.
This unsatisfactory appetite is a matter of concern for policy makers. Huge gold imports could destabilize the economy. During the “Taper Tentram” of 2013, when India’s foreign exchange reserves were lower than they are now, the rush to import gold helped push the current account deficit to 4.8%. GDP And a currency crisis has raised concerns.
Savings were pushed away because inactive gold could be put to more productive use elsewhere. Indian households have 22,500 tonnes of physical metal – five times as much as the US Bullion Depository at Fort Knox and a stock worth বর্তমান 1.4 trillion at current prices. Gold accounts for 11% of the average family’s wealth (as opposed to 5% of financial wealth).
The government has tried to use sticks to push people away from the bullion. Even after last year’s budget cuts to control smuggling, the import duty is still close to 10%.
It is also experimenting with carrots, which saves conservatives away from physical gold. The central bank has ramped up the issuance of sovereign gold bonds, which are marked in village gold. Of the 86 tonnes issued since 2015, about 60% were sold after the epidemic began. And the gold monetization scheme, which allows families to transfer gold to a bank and earn interest, was restructured last year to reduce the deposit size limit.
Lockdowns inadvertently helped the state agenda. Researchers at the Indian Institute of Management in Ahmedabad have found that when shops close and the sale of physical gold grounds ceases, some Indians lean towards online options. Mobile payment platforms such as PhonePe and Google Pay have reported a growing appetite for digital gold, which is sold online and stored by sellers. Money goes to the gold exchange trade fund (ETFs). Their assets reached 184 billion rupees ($ 2.5 billion) in December, an increase of 30% in one year.
Still, only a fraction of the population, mostly affluent urban dwellers, invest in millennial, complex financial products. A large portion of India’s physical gold demand comes from rural areas, where it seems unlikely that it will lose its luster. Those who live in remote villages do not always have a bank account or a smartphone, which makes it difficult to buy gold online. Or they may not be able to easily show the digital metal to the neighbors or lend it to their daughter ETF Wear her big day. 3
For more expert analysis of the biggest stories in economics, business and markets, sign up for our weekly newsletter Money Talks.
This article was published in the print edition of the section “Finance and Economics” under the heading “Carats and Sticks”.