Gold (price) rush keeps Indians smiling amid pandemic

On Saturday, gold prices hit Rs 52,915 in Delhi

Gold-bullion-bullion-Gold-bar-shut Prices in India, the world's second biggest consumer of gold after China, had crossed the Rs 50,000 milestone earlier in the week on Wednesday | File

Gold is on a rush, and it is all that much a glittering prospect for many Indians. On Saturday, gold prices hit Rs 52,915 on a steady ascent. Analysts believe the yellow metal will climb even higher, to a range of 65,000 rupees over the next year or so.

The price is for 10 grams of 24 karat gold in Delhi markets. Prices in India, the world's second biggest consumer of gold after China, had crossed the Rs 50,000 milestone earlier in the week on Wednesday.

Gold prices have been on an upward swing in India since the economy slowdown took hold in 2018. But it has surpassed all previous statistics now—the rise is 28 per cent in just the first few months of this year compared to 25 per cent for the whole of 2019. And if you take the lockdown period, the increase in value of precious metals like gold and silver have been as high as 45 per cent. 

Globally, too, gold prices have been on an upward swing, rising more than 18 per cent in 2020, the highest in the past nine years. On Thursday, the international price hit Rs 1.41 lakh per troy ounce (one troy ounce is slightly over 31 grams), very close to the all-time highest price the yellow metal had ever garnered (1.43 lakh in 2011). Reasons given are obvious—fall in interest rates around the world weakening the value of currencies like the dollar, and people turning to investing in the yellow metal for safety in a world wracked by the pandemic.

“The global Covid-19 pandemic (has) fuelled safe haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market,” says a Q1 report by the World Gold Council.

Just two years ago, in November 2018, gold prices in India were around Rs 30,000. Then, they started spiralling up, aided first by fears of a US-Iran war, and then over the double jeopardy of the trade war between the US and China sparking fears of a global fallout, as much as India's own faltering economic growth. As the US Federal Reserve took a series of steps to bring down interest rates, focus turned to looking at gold as a better bet than the dollar.

For many Indians, it may be a bright spot, considering how gold has been India's favourite investment instrument traditionally. One joke even goes that the world's biggest gold reserves are not the mines of South Africa, but the bank lockers of India! 

Yet, in global economics, the value of gold is as a safe asset, a commodity that is generally stable and does not lose its value, even as other commodities like money does in troubled times.

Experts believe that until the global economy stabilises from the aftermath of Covid-19, this rally should likely continue. A trend that would be boosted as many governments print (or are thinking of printing) extra currency, lower interest rates or issue bonds to tide over the present economic deceleration. Extra currency in circulation and lower interest rates mean the money component in your investment portfolio reduces in value—while gold's value increases.

But while the rise in prices is comforting to those with gold in their lockers or jewellery boxes, it has turned out to be a deterrent for those wanting to buy gold. Retail sales have dropped due to the high prices. Import of gold, steadily going down through last year, further crashed 96 per cent in the first quarter of 2020, though shipments ceasing due to the lockdown was a bigger factor.

Richard Davies, the former economics editor at The Economist, calls gold 'an informal insurance mechanism' in his latest book 'Extreme Economics'. “A woman's gold is both her personal treasure and plays a functional role as the family's financial buffer,” he further writes in the same book, words that are especially true in India as it may be in another corner of the world. In India, where the rich as well as those who can barely afford it alike tend to buy gold, treating it equally as an ornament and heirloom as much as the knowledge that it is a safety net against the vagaries of the future. And obviously, its value goes up in times of uncertainty, as the case has been the past few months, in a pandemic-inflicted world wracked by fears of economic, if not mortal, ruin.