The timeless lustre….

Updated: Nov 01, 2010, 00:36 AM IST

Reema Sharma

People have treasured gold for centuries. The fetish for gold is driven mainly by two factors. One is the emotional and psychological value it holds and, second, the attractiveness of the precious metal as an investment option.

Strong safe-haven buying has always boosted the value of gold, as is being demonstrated by the ongoing festive surge in retail demand.

In the context of a volatile currency market, gold coins are generally considered a safe investment option. The fact that these coins can be readily exchanged at jewellery shops for cash or other gold articles makes them a highly sought after tradable asset. Hence, people are buying gold despite rising global and domestic prices. Retail buying is still strong even though jewellers opine that investment buying this year has been sluggish.

Talking to, Rahul Jain, media head of PC Jewellers said, “The trend in investment buying has not seen much escalation this year. Despite rising gold prices, markets are witnessing robust retail buying.”

In the sector of corporate buying too quantity has replaced weight. “People have increased the quantity of buying. If last year someone bought ten 10 gram coins, this year he is likely to buy twenty coins of 5 gram each,” Jain said.

As jewellers can convert gold coins into jewellery and sell the same for profit, they can easily offset the recycling cost. Despite investors’ aversion to risk in the current economic climate, festivities are driving up the value of gold.

Talking about sales strategy, Jain reiterated, “Higher gold prices have not affected sales. To make retail buying fit consumers’ budget, jewellers have reduced the weight of the jewellery pieces so that there is no compromise on design.”

Dollar and gold share an inverse relationship. International gold XAU was trading at USD 1,338.11 per ounce after gaining more than 1 per cent in the last session of trading on Friday (October 29), barely five days before the festive season begins. Reflecting international trends, gold prices in the Indian market crossed Rs 19,800 per 10 gram (Delhi price index).

However, Suresh Hundia, president, Bombay Bullion Association, has a slightly different view. Unlike retailers, he feels that the burgeoning price of gold is bound to constrict demand. Talking to, Hundia said, “While investors are currently trading the yellow metal, physical demand in the domestic market has nearly dried out.”

Market speculators have conjectured that Deepawali and Dhanteras sales will see a rise of up to 40 per cent. However, given the appreciation in prices, real demand may not match the projection.

Meanwhile, inflows into gold Exchange Traded Funds (ETFs) have been strong due to the metal’s appeal. India`s gold collections rose by 90.2 per cent to 12.87 tonne in September this year. But Hundia says, “Only those with a sound understanding of the equity market are investing in ETFs. Small-time investors do not have much paper gold on their portfolios.”

Gold has always been the safest mode of investment. Share markets across the globe saw a chaotic graph during the recent global slowdown. But gold was one commodity that did not let investors down.

If we consider the trend over the last five years, gold has consistently given us positive returns. Therefore, it would be fair to concur that investment in the precious metal is still the safest option available.