Reuters/Mumbai


A customer tries gold bangles inside a jewellery showroom at Noida in the northern state of Uttar Pradesh. Demand for gold bars, coins and other pure investments in India soared 83% in 2010 from the year earlier to 349 tonnes
In a nation whose love for gold is legendary, financial adviser Biju Daniel is one of scores of Indians who are rethinking how they amass riches through the precious metal.
Daniel’s wife owns at least a kilogram of jewellery and he sports a gold watch. But he is also shrewd enough to realise that the world’s biggest gold consumers are falling out of love with wearing their wealth, preferring to stock up on coins, bars and bullion-based investment funds as they look for returns safe from the ravages of inflation and the dictates of fashion.
“The current generation is not serious about gold. They have bangles but they don’t wear them,” Daniel, of Shreyas Investment Services, said in his basement office, after wrapping up an offer to clients of the SBI Gold Fund as an investment.
“Look at college campuses, Indian girls there are not interested in gold jewellery. My wife has about one kilo of gold jewellery but my daughters are not interested.”
Demand for gold bars, coins and other pure investments in India, Asia’s third largest economy, soared 83% in 2010 from the year earlier to 349 tonnes, according to GFMS, a precious metals consultancy that is part of Thomson Reuters.
The amount of gold used in making jewellery in 2010 rose 36% to 685 tonnes - giving investment demand 34% of total buying, up from 28% in 2009.
“Gold has come a long way from being a jewellery item to an alternative currency,” said Gnanasekar Thiagarajan, a director with Commtrendz Research.
“Investment demand could surpass jewellery demand in the next two to three years,” he said.
Indians’ passion for gold dates back centuries and the country is home to one of the world’s oldest - albeit now largely defunct - mines.
Gold, the ultimate status symbol, is also the gift of choice at celebrations, and jewellery stores across the country heave with customers in the run-up to festivals and the traditional wedding season in a country where brides are often weighed down with the wealth their parents give them.
Overall, gold buying in India jumped 38% in the second quarter compared with a year ago, as soaring prices simply fuelled perceptions it was a smart investment as worries about the global economy deepen.
Global gold prices have risen 29% in 2011 and hit a record $1,920.30 per ounce on Tuesday. India’s domestic gold prices have climbed 33% and touched a high of Rs28,744 per 10g on Tuesday.
With India’s inflation nudging 10% and the central bank’s key lending rate at 8%, domestic deposits and fixed-income investments are looking especially vulnerable, and the Bombay Stock Exchange has fallen 16.5% this year.
“If you look at interest rates, in real terms they are still negative so investors will definitely look at gold,” said Gargi Shah, metals analyst with GFMS.
“Investment demand has literally exploded.”
World Gold Council data for the second quarter of 2011 shows Indian investment demand rose 78% on a year ago to 108.5mn tonnes while jewellery demand rose 17% to 139.8mn tonnes.
Unlike jewellery, investment gold retains its value better because fabrication costs are significantly less and buyers don’t have to worry about their pieces becoming dated, making them harder to sell.
While owning physical gold may now have become harder, Indians are snapping up “paper gold”, funds like those that financial adviser Daniel sells for a minimum monthly payment of Rs100 (about $2).
Such small requirements are another attraction for paper gold investments in a country where 42% of the population have barely enough to eat and Rs15,000 a month makes you middle class - while a simple signet ring costs Rs20,000.
“Investing in gold has become affordable,” says a flyer for the SBI Gold Fund.
Reliance Capital’s gold exchange traded fund (ETF), India’s third-biggest gold fund, has more than trebled the number of its investors since March, and people are investing in it through online routes as well as in person.
Despite prices already higher than they have ever been, gold is still proving a worthwhile investment.