Speaker: Dileep Narayanan from the Malabar Group, Dr. Renisha Chainani from Augmont Enterprise,
and SomasundaramPR from the World Gold Council
Moderator: Chirag Seth, Metal Focus
Contributor: Sarthak Doshi, CFA Member, VP, Indo Thai Securities Ltd

The CFA sociey organised a session in Indore and the conversation covered three critical components
of the precious metal market.

1. Gold as an investment and where are the prices heading
2. Changes in Jeweller Industry
3. How should you look at precious metals for investment and portfolio construction?

The Allure of Gold: More Than Just a Metal

Gold is not merely a shiny metal; it carries significant cultural and financial weight. Here are a few
things they shared to shed light on its importance:

1. Cultural Significance in India: Gold is deeply embedded in the Indian psyche. Currently, Indian
   households possess around 25,000 tons of gold. Historically, with limited banking facilities in rural
   regions, gold offered a secure and liquid way to store and transfer wealth. Today, it is insurance
   against unpredictable times, reflecting its enduring importance.
2. Gold in Global Volatility: Gold’s reputation remains intact as a refuge during turbulent times. Yet,
   it carries the label of an “unproductive asset”. In counter, our speakers highlighted its still a
   meaningful way to store wealth while providing decent returns over the years. They also mentioned
   how gold was a saviour for India during the 1990s foreign exchange crisis. Notably, the Reserve Bank
   of India stands as the top gold purchaser, emphasizing its financial clout.

Unravelling Price Dynamics

They also examined the dynamics of gold and silver prices:

1. Gold: Its price is shaped by over 30 factors, including inflation, demand and supply, and
   macroeconomic conditions, with different factors taking precedence at various times.
   Talking about the demand pattern for gold, the speaker mentioned that 60% of demand
   geographically comes from north India and 40% from south India. In the south, one family
   buys about 50-70 gm of gold for a wedding, creating the biggest demand. The number of
   people buying gold for weddings has been increasing steadily.
2. Silver: It is often referred to as the “poor cousin of gold”. 60% of silver’s demand is industrial,
   driving the prices. There has been a deficit for the last two years of 200M ounces. This year
   also has record demand, given EV, Solar and 5G tech growth. They mentioned that
   historically it has a beta of 1.5 of gold.

The Indian Enigma: Why Prices Here Differ from Global price movements

Gold’s stable pricing in India, despite a global decline. The speaker mentioned that the gold prices in
India is a combination of Gold prices in dollar and Dollar rupee price. Multiple factors affect them,
creating a difference in gold price movement globally compared to India. To mention stock market
momentum, the impact of the monsoon, inflation, and Indian tax and duty structures.

Jewellery Industry and demand

The jewellery sector has been changing over the years. The speaker mentioned that.
 The gold prices have been very volatile. Proper hedging policy is crucial to business
sustainability. Gone are the days when jewellers made money off just the price increase in
gold.
 Responsible sourcing in become more critical now. Efficient sourcing can make or break a
business, like buying CIPA gold, which can add to margins given it is at a 1% discount on
market price.
Still, the margins of gold jewellers have been stuck at 3-4%. The speaker highlighted this because of
the lack of a unified rate across India. Additionally, small single shops cut margins, impacting the
industry. He felt the market is big enough, but trust is needed, which will help expand margins.

The Changing Demand Patterns

The moderator mentioned – Interestingly, while silver demand has tripled from 800 tons to 2400
tons over a decade, but gold demand, including jewellery, has remained static at 600 tons. It was
caused due to
 Increased banking access has reduced the need for people to use gold as a store of wealth
 The younger generation has lacked the affinity for gold
 greater awareness of mutual funds and ETFs.

But they mentioned that in India, value has grown. This primarily came from price growth.

Investing in Precious Metals: What’s the Right Approach?

As suggested by the speaker, an ideal portfolio should have a 15-20% allocation to gold and silver
and its jewellery. This number will depend on various factors such as demographics and risk
appetite.
The speaker also highlighted how this allocation has changed over the years. Pre-2008, it was 5-10%
post; in the 2008-2020 pre covid period, it increased to 10-15%. But now, Post-covid, it has risen to
15-20%. Each crisis impacted it, and gold showed its necessity.
Lately, gold hasn’t been the best inflation hedge. The biggest competitor to gold prices is bonds
yield, and recently yields have been moving faster than inflation. This led to gold underperforming
significantly. But they believed that long-term prospects appear promising, with expected 10-12%
returns over two decades. That’s why they suggested an equal split of 10% in gold and silver. This
will help reduce volatility in the portfolio.

Digital or Physical: Which Path to Choose?

The choice between physical and digital gold depends on the investor’s intent. For occasions like
weddings, physical gold is preferable.
For investments, options like ETFs are gaining traction. But they also mentioned that the ETF market
has not grown as expected. It is currently at only 38 tons. ETF as a concept didn’t pick up in India
because the user behaviour in India differs significantly from Western countries. In India, the
consumption of gold comes because they want to flaunt it.
Digital gold is used only for short-term investments by Indians (like two years); for the long term,
they go for physical gold. They also mentioned that sovereign gold bonds aren’t backed by gold.

Spotlight on EGR (Electronic Gold Receipt)

Touted as a game-changer, EGRs are digital gold receipts starting at as small as 1 gm. They can
create a standard spot market across India necessary for higher trust and making EGR a major
investment avenue.
Given they are tradable on exchanges, they can dual-serve as investments and loan collaterals. It
helps the country as the same asset can be used double – investors invest in it and lend it to
jewellers. This reduces the need to import gold.

The Million Rupee Question: Will Gold Reach INR 100,000?

While the golden apex might be on the horizon, silver is projected to reach that summit even sooner,
potentially within the following year.

In summation, precious metals, particularly gold and silver, are intricate and multi-faceted. As
investors, understanding these nuances and dynamics is crucial to making informed decisions and
reaping glittering returns.