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Gold faces uncertain global future
India, however, beats this global trend as more people continue to buy the yellow metal despite international trade wars and embargoes.
Chennai
The quest for gold has set off wars, shaped civilisations and warped relationships, but the precious yellow metal seems to never lose its sheen – at least in India.
Here, the Central bank accumulates gold, businessmen use it as a means to save illegal money, the underworld hoards it, and the middle class buys it, flaunts it and uses it as investment. Not even the gods are spared as devotees flock to temples in a race to offer gold to the deities.
Across civilisations, gold has been a metal of value well before the advent of money in human history. Unlike currency, gold is universally accepted.
No weddings can be conducted without gold, particularly in South India, where the obsession for gold is legendary. Historian Prof Kapil Kumar says, “It is not that Indians alone are affectionate towards gold. Gold is a precious metal and a rare commodity.
Historically it became the symbol of prosperity and luxury. Gold has its inherent value, is very convenient to store and is rated as a high value commodity in the ancient system. It was convenient to make payments with gold and even bribe in the old system. All these advantages are still continuing without much change.”
A symbol of wealth
In 1982, India’s total consumption of gold was 65 tonnes (population was 71.31 crore). In 2018 it shot up to around 760.4 tonnes and saw an average consumption of over 700 tonnes in the last decade. While the population doubled during this period gold consumption went up phenomenally by 10 times. According to the World Gold Council, (WGC) India is one of the largest markets of gold as growing affluence drives demand. Gold has a central role in the country’s culture, considered a store of value, a symbol of wealth and status and a fundamental part of many rituals. Among the country’s rural population, a deep affinity for gold goes hand in hand with practical considerations of the portability and security of jewellery as an investment.
In every small town, one can see scores of gold jewellery retail outlets. The gold and diamond jewellery industry, which used to be mostly dominated by small and family concerns, have slowly started graduating into organised entities with corporate entities such as the Tatas (Tanishq) too entering the fray. The bigger branded companies are pushing the demand for gold with attractive marketing and advertising campaigns.
Growing market
In India most gold jewellery purchases happen during the wedding season. Apart from that, purchases are made on auspicious days like the regional New Year, Akshaya Trithiya or Dhanteras and Diwali. Parents or grandparents gift gold to the new born and even birthdays are occasions for gifting gold. Indians find every possible occasion to purchase gold. Now the retail outlets market it vigorously with special packages to enlarge their reach.
The gem and jewellery industry has a significant position in the Indian economy. This market is estimated at $75 billion and is likely to touch the $100 billion mark by 2025. It presently contributes seven per cent of India’s GDP.
“Transforming India’s Gold Market,’ a study conducted by government think tank Niti Aayog, estimates that the gold industry’s contribution will double to three per cent from the current 1.3 per cent by 2022. Similarly, employment opportunities in the gold industry will increase from 6.1 million currently to 10 million by 2022.
With the recent hike of 2.5 per cent customs duty, gold attracts an import duty of 12.5 per cent and an additional GST of three per cent that makes it 15.5 per cent costlier in India than the international market. But irrespective of whether the international price of gold is shooting up and the Indian government is hiking taxes to discourage the domestic consumption to save forex, Indians are buying more and more gold and it is growing at the rate of 15 per cent a year.
Higher gold consumption
Says T S Kalyanaraman, chairman and managing director of the Rs 15,000-crore Kalyan Jewellers,“In the 90s, when the economy opened up to foreign investments, we were exposed to a new way of life – job creation, private enterprise and a slew of other opportunities.
This created a new, educated working middle class. Naturally, they looked towards gold, as a secure, easy-to-liquidate asset class.”
Another leading gold jewellery chain, Joy Alukkas group chairman and managing director, Joy Alukkas, gives credit to economic liberalisation which commenced in 1991. He says, “Increased foreign investments, deregulation of markets, reduction in import tariffs and taxes propelled the economy and India went on to achieve high economic growth during the 1990s and 2000s.” Improved job opportunities and higher income levels encouraged people to buy gold.
Liberalisation helped to expand gold retail chains across the country and also created unprecedented demand from the rural areas. During this period organised retail players placed their footprints across the country and a number of local state-level players emerged.
Gold jewellery accounts for about 50 per cent of gold consumption, followed by gold bars and coins, which account for another 25 per cent. Now the question is who buys more gold. There is a general perception that it is fuelled by the middle class. Economist professor Venkatesh Athreya, differs. “The high gold consumption is coming from the upper crust of society – highly rich people.
After liberalisation the income of the upper class has increased very rapidly. That trend is continuing. They are the people who consume more gold,” he says.
Social pressure to buy yellow metal
About one per cent of households account for 60 per cent of India’s total wealth. “Historically, we have seen unequal distribution. After liberalisation this has intensified manifold. And there is a phenomenal increase in illegal wealth in the country. A good part of the money will go towards buying gold,” professor Athreya said.
Echoing his views, historian Kumar says, “The high-income group spends lavishly on weddings and celebrates them ostentatiously. It is a pure display of wealth. Showcasing gold and precious stones is fashionable. Peer pressure from society and the tendency to imitate compel the middle and lower middle classes to follow this trend. However, although these segments are large in numbers, consumption is not higher. High consumption is recorded from the richer sections of the society.”
Times are uncertain owing to the geo political and economic situation globally— the US trade embargo on Iran, increasing trade war between the US and China, unrest in the Middle East, the US withdrawal from the Anti-Ballistic Missile (ABM) Treaty, that is likely to start a fresh nuclear and missile arms race between the US and Russia, unrest in Hong Kong streets, missile treaty from North Korea, slow-down in the economy and uncertain stock markets. Not a healthy picture at all.
Legendary investment banker J P Morgan succinctly puts it: “Gold is money. Everything else is credit.” No wonder then that Indians are so obsessed with gold. It is safe and liquid in a troubled world.
Nuggets About Gold
- Nearly all the gold on Earth came from meteorites that bombarded the planet over 200 million years after it formed
- There are 52,000 tonnes of mineable gold still in the ground worth $2 trillion
- The US space agency NASA estimates that near earth asteroid Eros contains 20 billion tonnes of gold. It is currently 22,34,96,479 km away from Earth
- There is enough gold in the Earth’s core to coat its entire surface to a depth of 1.5 feet
- Indian housewives hold 11 per cent of world’s gold. That is more than the reserve of the US, IMF, Switzerland and Germany put together
- After Switzerland, the world’s largest per capita gold reserves are held by Lebanon
- The infamous Attila, the Hun, accepted hefty ransom gold in exchange for not attacking Roman territory — then did it anyway
The Art Of Handcrafting Gold
- Historically, jewellery-making has had an unbroken chain of tradition for over 5,000 years in India. Indian goldsmiths, traditionally known by different names depending on the region - Sonar, Sunar, Swarnkar, Panchallar or Thattan, are known for hand-crafted jewellery, but are now fading into oblivion
- With large-scale mechanisation taking place in the industry, traditional goldsmiths are losing their jobs. For instance, at one point, there were 25,000 goldsmiths in Tiruchi alone, and today, there are only 1,500
- Different regions of India have their own distinctive jewellery making styles that are unique to the area. For instance, fine filigree work in silver from Odisha and Andhra Pradesh; the art of enameling or meenakari from Jaipur; temple jewellery from Nagercoil, Tamil Nadu; and kundan or the setting of semi-precious or precious stones in gold from Delhi
- The famous Nagarcoil temple jewellery, in which the finest gold is embedded with precious gems and stones, which are mainly used by classical dancers, has recently got the Geographical Indication (GI) tag
- Temple jewellery is believed to have originated during the Chola period. This jewellery was used to adorn gods and goddesses mainly in Tamil Nadu
- The Sunar caste, as the goldsmiths are known in the North, is one of the oldest communities in goldsmith in India, whose superb gold artworks were displayed at The Great Exhibition of 1851 in London
- Gold jewellery has played a pivotal role in highlighting the beauty of the various dance forms popular in India like Kuchipudi, Kathak and Bharatnatyam. Classical dancers performing various dance forms are given an exquisite appearance by embellishing them with sparkling Indian jewellery
- The preference in India for heavy jewellery is now changing and people are going for lighter versions
- Historical records show that Indian jewellers mastered various skills required to make fine jewellery quite early; mixing alloys, moulding, setting stones, specializing in inlay work, drawing gold and silver into thin wires, plating and gilding
- Bridal jewellery is chiefly created to match with the attire of the bride. The theme and the color of the jewellery play a pivotal role in giving it the intricate look. To add to the attractive element of the ornaments, diamonds and various other gems are used on the base metal of gold
Who Loves It More
- Gold and Jewellery industry estimates that South India consumes about 60 per cent of gold in India
- According to the National Sample Survey Office (NSSO) data 2011-12, Kerala stands at the top of the consumption list in both the rural and urban categories followed by Goa, Karnataka, Himachal Pradesh and Tamil Nadu. In urban consumption, Tamil Nadu is in the second position, followed by Haryana, West Bengal and Gujarat
- It is estimated that there are about 3,50,000 gold jewellery outlets in India which are mostly family owned. In the last 10 years, organized players have penetrated this segment, displacing family owned shops
- Koduvally village near Kozhikode in north Kerala is known as the state's ‘gold village,’ with more than 100 jewellery shops
- Tamil Nadu jewellery Federation, an apex body of the state jewellery traders, alone represents 25,000 jewellery traders in the state
Testing For Purity
- Gold karat can be 10,12,14,18,22 or 24. The higher the number, the greater the purity. 24 karat gold is the purest form of gold. It is 99.95 per cent pure
- In India 22 karat is most popular and is mostly used to make jewellery. 22 karat designs are intricate and elaborate. It is 91.67 per cent gold (22 parts gold and two parts of other metals like silver, zinc, nickel and other metals). This gives tensile strength to the metal
- Hallmarking of gold ensures purity. Hallmarked gold jewellery is now available in three grades with following numbers. 22K (916) = 22K, 18K (750) = 18K, and 14K (585) = 14K. Prior to January 1, 2017, the numbers were as follows 958 = 23K, 916 = 22K, 875 = 21K, 750 = 18K, 585 = 14K, and 375 = 9K
- Around 30-40 % of gold jewellery is hallmarked in India. Plans are in the pipeline to implement mandatory hallmarking of 14, 18 and 22 karat gold jewellery weighing more than 2 grams
- It only costs Rs 35 to get a hallmark certificate for a piece of gold jewellery
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