Akshaya Tritiya today: Why consumers buy gold jewellery and not gold bonds or ETFs

The one attraction that refuses to wane or pale with us Indians is the love for gold. The glittering metal in all its forms, matte finish, lustrous or white gold is irresistible. Most of us buy it because we like to wear gold jewellery on our person and some buy it as a form of investment.

With Akshaya Tritiya, buying of gold gets a 'holy' backing with the day considered auspicious for gold purchases. Most jewelers are optimistic that there will be a high demand for gold jewellery this time around as the challenges of the regulatory policies that were introduced by the government over the last few years coupled with demonetisation announced on November 8, has had its impact on the trade.

To get more footfalls, most jewellers are luring customers with schemes like discounts on diamond jewellery, no making charge on gold jewellery and other freebies upon purchase of a certain quantiy of gold today.

The broad spectrum is bullish on gold, say Aurobinda Prasad Gayan, VP Research at Kotak Commodities. “With the safe haven appeal and attractive asset to accumulate on Akshaya Tritiya, gold is expected to hover in the upper trajectory of Rs. 30,000 mark in the domestic market,” he said.

Reuters

Reuters

Backing Gayan’s outlook, Vijay Jain, CEO and director, Orra Fine Jewellery, says compared to the previous year, the consumer sentiment is on an upswing so far this year. “We are offering 50 percent off on making charges of gold jewellery and no making charges on gold coins and gold bars.” He is optimistic this will lead to increased purchases today.

The government's Sovereign Gold Bonds  issued by the central bank which permits buying bonds worth 500 grams of gold per year at 2.75 percent interest has not garnered much interest. This despite the bonds making it possible to take loans against them. One of the reason being cited is because most people, especially women don't want a piece of paper in hand instead of the real precious metal. “You can’t wear a certificate around your neck, can you?” is the oft-repeated query of women.

Currently, the country purchases an estimated 300 tonnes of gold bars and coins every year for investment purposes. Most of this comes through imports. According to a World Gold Council study, the biggest high for a bride is gold and consequently more than half of the gold imported in India is used for wedding purposes. Of this, a significant chunk is used to make ornaments.

Though as a country we are the largest consumers of gold, we rank 10 among countries with the largest gold holdings. According to Forbes, India has 557.7 tonnes of the precious metal. The United States tops the list with 8133.5 tonnes followed by Germany at 3381 and Italy at 2451.8 tonnes.

Why is gold such a precious commodity that most Indians, even the poor have or aspire to buy at least a gram of gold? Primarily, it is because holding gold in the family is a tradition in India that also marks most joyous ceremonies in one’s life. Some parts of the gold owned by an individual are heirlooms that are passed down through generations. It is also the only asset a woman can call her own. Gold is the woman’s property that she can wear, pawn or sell in times of need. It is a personal asset and also fulfills a social, cultural and economic need.

“Women don’t buy gold as an investment. It is a security and status symbol for most women,” says Nitin Khandelwal, Chairman, Gems and Jewellery Foundation. “A gold bond is a piece of paper. It does not have the same effect as holding physical gold. That is one of the reasons women balk at the suggestion of investing in bonds or any other such instruments where gold is only a notional value,” he says.

Think about it. If, for whatever reason, a woman wanted to get money for an emergency, where would she turn to without worrying about pride or honor? The only thing she can be sure of getting money in exchange of a commodity immediately is the gold in her possession. “A bank with its timings and holidays is not really helpful in such situations,” says Khandelwal.

Gold is bought largely by two segments of the population. One section buys it for self-use and makes its purchases with that in mind. “When the government comes out with gold bonds, it is catering to the second segment which buys gold for investment purposes. That is a very small segment,” says Jain of Orra Diamonds.

World over, gold bars and coins are considered an instrument of currency that protects an individual in times of need and also works effectively as an investment for some. The reason why women still prefer to go to a store and buy gold than walk into a bank and buy a gold bond is because they like the anonymity of buying gold from a store. It also is familiar ground in some cases, of knowing a trusted jeweler the family has been dealing with through generation, says Somasundaram PR, Managing Director, World Gold Council. “Sovereign gold bonds, ETFs, etc., are for people who understand the stock market, mutual funds and other such instruments. For them, these schemes are very, very helpful,” he says.

The gold bond scheme is available at an attractive interest but that does not make it popular with the public. “You don’t buy the cheapest mobile available in the market, do you,” asks Somasundaram. “You always have a brand that you aspire to buy when you have the money. That is the case with gold too. You wait and buy the precious commodity as it is aspirational and serves so many purposes for the buyer – you can wear it, use it for special occasions and sell it in troubled times. No paper or bond can replace that feeling,” he says.

Also, the bond price is a mismatch, says Kishore Narne, Head- Commodity and Currency, Motilal Oswal Commodities. “A bond is not gold and is lending money to government without any real gold being bought or sold. The bond value will come down if import duty comes down. Who will bear that loss but the consumer? Why should an investor bear that loss, at all. Whereas EFT has expense issues, the returns are not compatible to physical gold,” he says.

Gold sales are largely driven by women in the rural areas. They are not fascinated by the stock market. Also, most people are not aware of how to liquidate a sovereign bond and borrow against it. “It is not something most have heard about,” says Somasundaram.

Gold coins were a major draw for consumers until a few years ago, says Khandelwal. In 2013, the UPA government, faced with the high gold imports that widened the country's current account deficit, increased the import duty on gold to 10 percent, put in an 80:20 rule stipulating 20 percent of the gold imported has to be re-exported; and asked banks to strictly follow guidelines restricting inward shipments of the metal. This was a dampener for most consumers. “The customers haven’t gone back to buying coins like they used to earlier since then,” Khandelwal says. It also works for the government as it is happy when consumers buy jewellery as there is tax collected on every purchase, he said.

Indians usually buy gold in large quantities during weddings. Akshaya Tritiya, though considered auspicious, is not an indicator of the buying trend, said a jeweler. However, the trade is expecting good sales today unlike last year when during Akshay Tritiya was hampered by the long strike by the trade. Consequently, sales were muted then, says Somasundaram. “The price of gold has now gone up only 2.5 percent in India unlike 8.5 percent globally due to the appreciation of the rupee. That itself is a great incentive to buy,” he says.

Gold is only bought in small value for Akshaya Tritiya as it is mere tokenism to the festival made more popular by advertisements and discounts offered by the trade for the day. “Jewellers have stocked up this year too, and there is a huge optimism in the trade as the repercussions of GST are not known yet,” said Somasundaram.

The other rules such as mandatory quoting of PAN card number by the customer while buying gold have already been factored in by the consumers. As Somasundaram says, "People typically tend to make small purchases over a period of time instead of one large purchase to avoid giving PAN.”

Another small big day for consumers and hopefully a big, if not bumper day for the trade.

(Data support Kishor Kadam)


Published Date: Apr 28, 2017 09:44 am | Updated Date: Apr 28, 2017 12:28 pm