gold is spreading its wings

gold is spreading its wings

Indians are sitting on $1.5 trillion worth of gold. the total quantity is estimated to be as high as 20,000 tonnes. Indians love gold. they wear it at weddings, mortgage it during tough times, and buy it to increase their wealth.

but gold is not the investment it once was. India’s relationship with it is changing. gold jewellery doesn’t appeal to Gen Z. they like fast fashion. gold doesn’t fit into ever-changing trends. but Indians still want gold. which is why ‘Phygitical’, physical plus digital, is becoming sought after

companies too have discovered this strange relationship. today, brand tie-ups are offered where customers can directly exchange their digital loan for a necklace set from a retailer. and buyers are using digital gold wallets to pay. it is why jewellery retailer Tanishq has added new digital gold products.

something curious is happening around the market. the stock market is on a long bull run. the BSE is 52% points up in the past year. it doesn’t seem to slow down. on the other hand, gold prices have plunged from the all-time high they were last month.

on the Multi-Commodity Exchange (MCX), October gold contracts shrunk 0.16% to ₹47,449 for 10 gm last week. why? gold has traditionally been an asset to hold during periods of uncertainty. and during a bull run, uncertainty is low. this has made gold interesting. 

now there are different ways of owning the metal. and it’s even perceived differently. for example, digital gold with no minimum purchase limits is getting popular. 

is it a pivot?

different customers, different demands.

those in the 50-60 years age group insist on buying gold coins and bars. but they buy some sovereign gold bonds too.

gold bonds are sold through banks, post offices and stock exchanges. you have to buy at least 1 gm gold and can go up to 4 kg. the best part: there is no capital gains tax on redemption. 

even as new gold channels open up, those buying jewellery will continue their purchases. for them, it’s an ideal time to buy before gold touches an all-time high.

then there are those between the ages of 40-50 years. they are investing in paper gold. 

the 11+1 monthly gold scheme is also gaining popularity. it’s where you pay 11 months of installment and the gold retailer pays the balance one month. at the end of the year, you redeem the funds to buy gold.

some regulatory changes are being planned for customers. they will make conversion from physical to digital and back to physical easier.

what about e-gold?

digital gold has millennials hooked. Now, even Gen Z is entering this space in a hurry. and new startups are sprouting. 

the sheer convenience of buying draws customers in. since Covid is still around, you can’t visit shops freely. then there’s the hassle of verifying physical gold.

E-gold frees you from such responsibilities. it’s bought online and stored digitally. mobile wallet providers allow its purchase. this shift is also driven by features like real-time rates, high-security vaults and easy redemption. 

but digital gold also comes with a major caveat. nobody regulates its market in India. Sebi too has expressed concerns in the past. and NSE has banned its brokers from selling digital gold from September 10.

so, it would be good to exercise caution and opt for companies with known track records. banks and RBI-registered wallet companies are your safest bets.

linking it to mutual funds

there’s a gold mutual fund option too, and customers prefer it. similar to net-asset value (NAV) for MFs, the value of gold is linked to its price in the local market. it’s basically a fund of funds that invests in gold Exchange-Traded Funds (ETFs).

sounds complicated? let’s simplify. you invest in the gold MF. this MF invests the fund money into an ETF. this is then invested into physical gold of 99.5 and above purity. 

customers unwilling to get involved in the buy/sell of physical gold can choose these options.

too much gold at home already?

but Indians still hoard gold. so, why not monetise it? instead of letting gold sit idle, one can opt for the Gold Monetisation Scheme and earn an annual interest of up to 2.5% on the weight of gold that is tax exempt.

gold can be deposited for 1-15 years. at the end of the tenure, you can either collect the physical gold or exchange it for cash based on the day’s price. launched in 2015, the scheme is not very popular because of the sentimental value attached to gold. 

but, the price

gold is among the most volatile instruments. pricing depends on a lot of factors, including demand-supply, geopolitical factors and interest rates.

right now, the prices are holding steady. gold prices were stable on September 2 ahead of the US non-farm payrolls data that is crucial to the Federal Reserve's tapering plan.

here, gold prices are holding support levels of $1800 per troy ounce ahead of the US job reports. it is expected to test $1844 levels again. now is a golden moment to enter.