While diamonds may have been touted as a girl’s best friend for years, gold is still a firm favourite when it comes to Indian consumers and investors.
Gold prices in India hit a fresh record high on March 5. Price of the yellow metal surged to Rs 65,000 per 10 gms in Delhi markets.
Why is gold such an attractive option for investment even today when so many options are there on offer? American financier JP Morgan reportedly stated in his testimony before the US Congress in 1912: “Gold is money. Everything else is credit.”
Gold is especially popular among Indian consumers and investors. One of the reasons for this popularity is that it is a commodity that has diverse uses. While Indian central banks have been partial to holding gold, people like it as it can be converted into jewellery. Apart from this, gold is a liquid asset that can easily be sold if a family emergency arises.
High returns
It must be noted as far as its appeal goes that gold has almost matched equities in terms of returns in the last five years. A rupee invested in gold via Exchange-Traded Funds (ETFs) has yielded returns only slightly less than a rupee invested in Nifty (National Stock Exchange Fifty).
The first gold coins were issued in what is now called Turkiye around 561 BCE. Today, gold trading volumes match up to those of bonds and equities in the global financial markets.
There is one constraint. The supply of gold is limited and mining gold is not an easy task. Miners need to dig deeper these days. For years, supply of gold has not been able to keep up with demand. In fact, around 30% of demand is met by recycling old stocks.
Geopolitical events
While the US dollar has been seen as the world’s reserve currency, in recent times there is some apprehension regarding this matter. Geopolitical events like the Russia-Ukraine war, China factor and West Asia conflict have made countries look for alternatives. In this scenario, gold has become the favourite. The safe commodity.
Also, when inflation has been a major problem in many countries, gold has been a saviour for people. When prices go up, gold prices rise too unlike many other assets.
Interestingly, gold consumption has accounted for over half its demand. India and China are globally the top two consumers of gold. The rich segments of the population in both countries have helped keep the price of gold soaring.
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