Indulgence vs investment: How Global Factors Can Affect the Gold-buying Habits of Indians

New Delhi [India], January 24 (ANI/Mediawire): India's centuries-old somewhat contentious relationship with gold has, nevertheless, always stood the test of time. Gold has evolved from only an object of beauty to being considered a commodity, a global currency as well as an investment. The brand new episode of Malabar Gold The Golden Truth, an initiative by the Times of India, has Kritsween Walia, Special Correspondent for Times Now, in conversation with Jim Rogers, an American author and investor, and Preeti Rathi Gupta, MD and Founder, LXME, country's new first financial platform for women, on the impact of Covid and other global factors on Indian economy and gold.
As the conversation weaves between the future of the world at large with Covid in the rearview mirror, the omnipresent inflation, and the impending recession, both Rogers and Gupta feel that these would have an unpredictable impact on the economy of our country as well as other nations.
Rogers feels that while inflation would keep fluctuating, investing in commodities such as gold may protect people from inflation.
Gupta feels that despite inflation and an upswing in gold prices, the demand will persist because many people are unaware of alternative investment options, especially in rural and upmarket India. She believes that gold will always be in demand as a haven asset as gold prices soar during a crisis. Alternatively, the convenience of liquidity it offers, particularly in our country, makes it an inevitable part of any asset allocation. "Covid was a unique once-in-a-lifetime black swan event. It led to gold prices, trading at $1500 earlier, peaking at $2085 per troy ounce in August 2020. Interestingly, the dollar also appreciated at the same time, taking the dollar index to an all-time high. For Indians, this was a double whammy."
Talking about the value addition of gold in reducing the impact on imports and increasing exports, Rogers asserted that the long relationship that Indians have with gold dominates the markets tremendously.
Gupta believes that any global crisis, be it the truckers' protests in Canada or the George Floyd protests in the US, will directly impact the price of gold. She asserts that between 2019 and 2021, Covid led to a very high surge in the prices of gold, which led to phenomenal returns. "The government then launched the sovereign gold bonds to stem the imports and expected the huge gold returns to be rerouted towards these bonds. About 1900-odd tonnes of gold are held under sovereign gold bonds today. But, as a country, we are consuming about 9,00,000 tonnes of gold, second only to China. Most of this comes from investment avenues."
However, Gupta agrees that we as a country are also price sensitive so when prices go too high, there is also a demand slump. However, if there has to be an asset allocation, gold must be a part of it.
Rogers asserts that silver, which is also an industrial component with myriad uses in solar panels and electric cars, is much cheaper than gold as it is down 60% from its all-time high, while gold is at its all-time high. However, he insists that when it comes to investing shortly, people would go for both metals.
Rogers, who designed the Rogers International Commodities Index, believes that gold and silver will always remain in demand as coveted commodities to invest in. "People want to own gold and silver so that they know that they are protected during times of crisis." He insists that even China and Russia, which historically did not have much gold, have started importing it.
Talking about investing in emerging markets and developing markets such as China, Uzbekistan, and Russia, Rogers admits that these are much cheaper to invest in than New York or Japan, which attracts investors like him in the first place. "In cheaper and newer markets, positive changes are happening. They also offer diversity. I believe that as investors, people should invest in their own country's markets as well as in those of foreign countries." Rogers also advises investors to pay attention to global events like wars, large economies like the US and Japan which may be undergoing a recession, and their impact on the global economy, to make better investment choices.
Gupta talks about gold exchange-traded funds (ETFs) and gold mutual funds, explaining that given the inclination of Indians towards buying physical gold, it is important to make the masses aware of the benefits of putting their money in any form of electronic gold. "It is more expensive to hold on to physical gold than maybe electronic gold as it includes GST, insurance, and other costs. In electronic gold, you are getting the price of the purest form of gold. So when you do redeem it, you are getting the money for the purest gold. There are no storage costs involved. Additionally, transaction costs for physical gold are about 3%-4%, mutual funds are about 1.5% while ETFs are a lot cheaper at 0.5%."
Gupta also elaborates that mutual funds and ETFs can be bought at minimal amounts, with ETFs going at one unit per gram, while one can buy a gold mutual fund at a minimum of Rs 100, which can also be disciplined through a SIP. According to Gupta, this is particularly good for retail. In terms of tax implications for these digital assets, Gupta says that for short-term holdings, capital gains tax is applicable as per the holder's tax lab, while for long-term holding, one can avail of the indexation benefit, which at 20% taxation is a great benefit.
Concluding that such schemes are user-friendly and tax-saving, Gupta insists that they need more awareness and a shift in the thought processes. She believes that with 99.5% purity, the digital gold schemes have a better benchmark for liquidity than hallmarked physical gold, which makes it a financially better option. "Ultimately, the conversation here is about indulgence vs investment."
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