Your mother never bought gold with the idea of selling it. It was always meant to be a family heirloom. That's probably why, despite hoarding it, Indians rarely profit from gold.

By Nita Jatar Kulkarni

Once every six months, Geeta and Sanjay Kumar make a trip to their family jeweller to buy a gold chain, an earring, or a ring. They don't splurge because they are what you would call an average middle class family. They have a house, a car, and two teenage daughters. Typically, the 40-something couple spends close to Rs 15,000 on each visit, enough to buy a little more than three tolas (one tola is equal to 10 gms) of gold. That's how they squirrel away a part of their savings. They believe it makes sense. There are two daughters to be married, and gold is a good hedge against inflation.

The Kumars' investment strategy is neither unique nor new. For, as long as the mind can remember, generations of Indians have treated gold as an integral part of their investment portfolio. Not only did it help establish the family's social standing, but also served as a nest-egg when the family fell on hard times. Thanks to its high liquidity, the family could sell it almost instantly, without having to take a loss due to the distress sale.

That explains why Indians buy one-fifth of all gold sold in the world, and why 90 per cent of the gold bought ends up in the shape of jewellery. Yet, it seems that the gold hoarding generation is dying. Take a look around. How many of the 20- and 30-somethings you know, buy, or even wear, gold? Surely, not too many. If prices are any indication, then gold has been going out of fashion the past decade. From $380.79 per ounce (31 grams) in 1989, gold prices were down to $280 in 1998. At the moment, it trades at $276.85.

Traders themselves are now growing sceptical of gold's allure. Notes M.L. Damani, 63, ex-President, Bombay Bullion Association: ''Compared to stocks and bonds, gold appears to be a poor buy.'' Damani feels that gold's value as an asset diversifier is decreasing, with gold prices showing signs of stabilising, if not, falling this decade.

The World Gold Council thinks there's some glitter left. Contends Derrick Machado, 35, the Council's India director: ''Gold is not a replacement for stocks or other assets, but as an investment option it is the best-hedge against inflation and currency depreciation.'' Maybe. But there is no doubt that gold got hammered last year, a phenomenon that could be repeated this year and the next. The market expects three major gold sales in the near future. The Swiss have been planning one since 1997; the International Monetary Fund is toying with the idea of selling gold to finance hard-pressed developing economies; and the British government intends to sell half of its gold reserves.

In a supply-sensitive market, a gold rush could smother prices. Industry analyst, Gold Fields Mineral Services (GFMS), has suggested that prices above the $300 mark are unsustainable in the absence of genuine investor demand. GFMS says that in North America and Europe, gold has largely lost its former role as a financial hedge, and is now being viewed as just another commodity. In the same breath, it says that a price below $250 would be unsustainable, unless major gold stockers hit the market. Explains Anil Sahgal, 33, Vice President, Dundee Mutual Fund: ''There will be ups and downs, but gold will always be considered a safe option.''

The reality is that few in India see gold as a pure investment vehicle. For most, gold is part of their ethos. And even in times of a crisis, you sell gold only when all other options have been exhausted. Remember the national outrage when, in 1992, the V.P. Singh administration pledged India's gold reserves to tide over a repayment problem? Says Damani: ''When it comes to gold in India, the emotional and economic quotients are often blurred.''

Statistics bear Damani out. Less than 10 per cent of Indians buy gold for the sake of balancing their investment portfolio. Small wonder, then, United Bank's UB 99 gold deposit scheme is lacklustre, despite the income tax incentives it offers. Besides, there are not many options for buyers of gold bonds, with gold-dominated mutual funds yet to receive a government clearance.

At the end of the day, gold is something you buy to indulge your better half. As most men would aver, that's as good as an investment can get.

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY | CARE TODAY