The Yellow Metal has been a matter of discussion in every Economist’s Office amidst Global Turmoil in Europe and not to ignore the derailment of Local Economy by Dr. Singh and his scam scarred government. Thus, the situation leads to safe heaven Investment – The Gold. We have already analyzed in our previous Article – Indians’ Love Towards Gold. Today we’ll inspect the other aspects in BUYING Gold.
Sensitivity – Does Rising Price Affect BUYING of Gold in India ?
Theory of Economics suggests us that rising gold prices have a psychological effect on demand. However, ears on the ground in indicate that purchases of gold are finely balanced between buying quantity and buying a fixed amount in a normal scenario. A study of Gold Consumption Vs Price Rise reveals – A 10% rise in Gold price above expectations suggests that demand is likely to fall 10% instead of declining by 5%. On value basis, the impact is likely to be less than 1ppt. This indicates that households adjust the volumes and not value in the event of sharp moves.
Conversely, when the price falls, demand also rises but we have not seen a deep cut in prices yet and the converse theory is holding true.
Why Indians Prefer Traditional Jewelers Over Branded Jewelers ?
The unorganized sector has dominated the business over the years. In India the choice of Jeweler is a function of trust i.e – quality assurance and relationship. Location of the jeweler is very important aspect to gold purchasing behavior. Since Rural India doesn’t have access to Modern Jeweler retailers, they’ll stick around with their old one. Although traditional jewelers account for the bulk of gold transactions in India, the share of branded jewelry and jewelry showrooms has increased in urban India.
Gold for Lending & Borrowing is Common
It is not just the Sovereign Government that can borrow against Gold but around 15% of Indian households have opted for gold loans. Around 50% of rural households choose the unorganized sector of gold loans for funding farming activities due to rapid red tapism and bureaucratic hurdles in the process of availing Loans. Banks are preferred by urban households.
What is the Quantity of Gold Indians Hold / Own ?
Gold accounts for 1/3 to 1/4th [i.e 25%-35%]of the portfolio allocation of households. The estimated gold ownership among Indian households is around 20,000 tons, valued at US$1 trillion which is good enough for Indian Government to run the Nation for 12 Months. [Imagine without Corruption how long we could run ?]