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Glitter in gold

Ashitankababu is due to retire in a couple of months. He has had a decent job with one of the countless agencies of the government for over 30 years.

Even without racking his brains about savings and investments, he has managed to save up a tidy bit that will take care of his retirement needs and pay for his daughter’s wedding, thanks to a measured lifestyle.

He has brought up his daughter well, and she’s going to be wedded off to a doctor in the UK in February. Just when he thought he had everything covered, he has been knocked sideways by the tearaway rise in gold prices. He wasn’t sure waiting would help and instead chose to rethink his finances. He couldn’t certainly compromise on his daughter’s streedhan — the wealth that a girl takes with her when she marries.

Since freeing of imports in November 1997, India has accounted for nearly 20 per cent of global gold offtake. Estimates show that 13,000 tonnes of gold lie stashed in coffers in India, which is 9 per cent of the world’s cumulative mine production.

Although gold is mostly consumed in the form of jewellery, it is viewed as an investment vehicle in India. Among asset classes, gold is second only to bank deposits, with a per capita annual consumption of nearly Rs 300.

Why do people buy gold'

Historically, investors have turned to gold because it has maintained its value when other assets have been volatile. What’s more, it is a ‘currency without borders’ — a secure asset that can be tapped at any time, under virtually any circumstances.

For the more savvy investors, gold is an ideal diversifier because the economic forces that determine the price of gold are different from, and in many cases opposed to, the forces that influence other financial assets.

Going through the roof

Analysts attribute the rise of gold prices to the weakening of the US dollar — the key currency for global trade — and geo-political uncertainties. Most had, however, gone wrong with their price estimates and gold has surged to a seven-and-half year high of $405 per ounce (it touched Rs 6,100 per 10 gram in Mumbai on Saturday).

Late last week, Goldman Sachs forecast that gold prices would continue to harden in 2004 and said that it would touch $450 an ounce by the end of next year. If that should come about, gold prices in India would only head northward.

Gold prices have been rising since 2001. Typically since 1968, gold cycles have run for three years, but most analysts reckon that it could this time extend into a fourth year (2004). While people like Ashitankababu are struggling to cope, others are liquidating their gold assets to ease financial difficulties.

Gold-backed investments

Buying gold in the form of jewellery, however, isn’t the best way to invest in the yellow metal. If you’re looking to invest in gold, it’s gold receipts, or a paper representation of the metal, that you should be buying.

Banks are set to launch a range of gold bullion products and deposit schemes that would allow you to accumulate without having to take physical delivery of the yellow metal.

If at any point, you wish to cash in rather than take delivery of your wealth, you could sell it to the bank without having to approach a jeweller who would typically deduct various charges.

With the Indian government allowing futures trading in gold, bankers are taking new strides to tap business potentials.

There’s opportunity for the common man, too, to profit from the new alchemy. If you start accumulating for your daughter’s streedhan through one of the new generation deposit schemes, you’d be better off than Ashitankababu.

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