Economist John Maynard Keynes called it a “barbarous relic”, billionaire investor Warren Buffett doesn’t set much store by it. But in India, gold has never failed to arouse extreme passion, either as a symbol of sanctity and human achievement or as one of evil and decadence. Now, investors and money are chasing it like never before as the yellow metal’s price continues to scale new highs. On Friday, a day before Diwali, gold was trading at $1,046.53 (around Rs48,454) a troy ounce, receding from an all-time high of $1,064 two days ago. India is one of the largest markets for gold, but there is more potential to stimulate demand, says Ajay Mitra, India managing director of the World Gold Council, a grouping of gold mining companies formed with the aim to promote the precious metal.
A former marketing executive with Coca-Cola Inc., Mitra joined the council about three years ago and has since turned gold evangelist. With a twinkle in his eyes, he told Mint about plans for gold-tinted contact lenses, comparative returns with other asset classes and efforts to get saree vendors to sell gold. Edited excerpts:
What are the reasons for gold’s meteoric rise this season?
The official view—and it’s not just our view—is that the dollar has weakened tremendously and it’s anticipated to slide further. That is one of the big reasons driving up gold. The other is an apparent inflationary trend in some countries, especially in the West. (For instance), Australia has already hiked interest rates. These are indications that the economy is going to turn around and there is inflation coming in sooner or later. And third, it (gold) is a portfolio diversifier. It is currently the only asset that has held on to its value, while other assets have had a roller coaster ride. While equity too has been doing well…how long will it sustain, consumers are not too sure. These are primary drivers of sentiments and price is following sentiments.
All that glitters: Mitra says products such as gold-brushed contact lenses and T-shirts with gold embroidery can be expected to be in the market next year. Abhijit Bhatlekar / Mint; Location: Popley Jewellers, Mumbai
But where is it all headed? Inflation is not yet a threat for key gold purchasers such as India, China and the Middle East. Are investors using it as hedge in spite of it touching all time highs?
All-time high is something that’s being broken on a daily basis over the last 10 days. The floor price is not something for me to speculate. Demand in India and the Middle East has been soft. Demand in China has been robust. Institutional buyers in the US have been very active. Institutional buyers in Singapore and other parts have been hedging. It’s not just gold. Other commodities are also going up.
So, is it fair to say that investment demand is rising?
I would love to say that. Current trends have indications of investment showing robust recovery. But we can’t generalize for the whole country. We have been? tracking consumer offtakes for the past two months. Mumbai is investment-driven. In Mumbai, coins and bars sell far more while Delhi continues to be jewellery-driven.
But why is overall demand soft in spite of the economic recovery gathering momentum?
India has a private holding of 19,000 tonnes. Nowhere in the world do we have such private holding. If you were to liquidate the gold, we will be very rich per capita. It is there in the closet, in the lockers. There is a certain level of acquisition already done. The incremental acquisition will reflect economic conditions. Acquisitions now will be lower than, say, seven years back.
Diwali this season is early. Is it one reason for lower imports?
No. People are buying gold. Those who want to buy gold are still buying. I don’t see it as a slowdown. You have a limited income and your budget permits only so much for an asset. This year, we have seen a price increase of 23-24%. Year to date gold imports are down 26%. It’s not a bad scenario at all. What other investment gives year-on-year (returns of) 20-25%. Remember, it’s a finite resource. There is only so much gold above the ground and no new reserves are being discovered. So it’ll always give you above par returns.
Are you buying gold yourself?
I hadn’t been buying gold before I joined (the World Gold Council). But the last two Dhanteras, I definitely bought gold and this year too (Dhanteras, a festival which Hindus consider auspicious to buy precious metals, fell on Thursday). Now, it’s part of my investments.
Has the Indian consumer changed?
For Indian consumers, gold is in their DNA. It’s part of our mythology, culture and traditions, which is not the case in the rest of the world. For them, it’s just an accessory, a fashion. It could be in, it could be out, depending on the trend. We are the only civilization that has stayed with our mythology and traditions. For us, gold is still part of our core beliefs. It’s part of our psyche.
But surely, you must have noticed some changes?
The core fascination for gold continues to be there. It may have taken a back seat from time to time; because we all try to maximize our investments by investing in funds which have given us higher returns. A trend we have been seeing is professionals who have got into businesses or starting a career—they really don’t look at gold to be part of the investment you need to keep back. They are happy with the gold they have inherited. So it’s our endeavour to find new ways and means and get them to invest in gold. This is something that has happened in the last 10-15 years. Another shift has been in the jewellery segment where the teens and the ones just getting into womanhood, they don’t associate themselves with gold simply because we haven’t been able to reinvent and make it relevant to them.
What are you doing about that?
We will bring in products—accessorize gold, new products in the white gold category because that’s what consumers at this age are looking at. Now, when you say gold, all we can think of is the chain and the ring. We’ve got fantastic products lined up for next year. One (for) instance, gold-brushed contact lenses. It has never happened before. We are looking at belts and buckles and patches you can put in T-shirts with gold embroidery. Basically, we are looking at fusing it with many other materials, many other forms.
We are also aiming to expand the reach. We have now roughly 3.2 lakh to 4 lakh (stores) for a population of 1 billion. Stores have to increase. We have to make it accessible. How do we do this? By looking at institutions which already have networks like the postal department. The other big opportunity is saree stores. These are complimentary categories. Now, they do not know anything about hedging and managing gold. If we can help them do that, it can be a big success. Nalli’s (a chain of saree retailers) is going to venture big time into this activity.
Does this mean that the trend will move towards branded jewellery?
Branded jewellery is a phenomenon only in the big cities. In smaller towns, branded jewellery is the store. It’s the jewellery store which is branded. With the government taking its eyes off the excise angle, we believe fresh investments will come in this sector. Gold quality has improved and buyers are seeing better caratages now.