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India’s love of gold put to the test

12 August 2020


Stock market investor Darshan Sheth is both concerned about and relieved to see gold prices hitting new highs. He is concerned as a potential investor because it is less affordable but relieved because his daughter got married just before Covid-19 swept across the world.


Luckily for Sheth, he had bought the required gold ornaments months before the wedding. Since he made his purchases last year, the price has surged more than 50%, hitting all-time highs globally above US$2,000.As an investor in stocks, which surged 44% from a sharp dip in March, Sheth is unsure if he should set aside some money to buy the precious metal or just stay with stocks.The majority of Indians found it difficult to buy the precious metal after the government imposed a countrywide lockdown for two months from March 25.


People in several states are still enduring lockdowns that limit their ability to make a living to various degrees, putting extravagances like gold well out of reach.Unlike economies such as the United States, where investors move seamlessly between assets classes traded on exchanges, in India gold is bought by the common man in its physical form, often with no guarantee of purity. To address this, India plans to introduce the hallmarking of jewelry next year.


Jewelry usually remains in family vaults as a safe asset that can be transferred to children at the time of their wedding or any other important ceremony.The purchase of gold has taken a back seat since the pandemic began, but that may change. A key test of demand will be the upcoming festival season beginning in October and ending with Diwali in November, which is then followed by the wedding season.Unofficial estimates put India’s private gold holdings at 25,000 tons, probably the largest in the world, with temples and trusts holding about 4,000 tons. During times of dire necessity, gold is pledged as collateral to borrow money.