INTERVIEW – Gold safest investment in these uncertain times, WGC India chief

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The current state of the global economy made gold a very attractive investment, said Somasundaram PR, managing director of World Gold Council, India, acknowledging that the dark clouds thanks to the on-going US-China trade war, depressed interest rates and uncertainties around oil production and prices made things difficult.

“It is well known that during times of uncertainty, gold is always a safe haven for investments. The state of the current global economy indeed makes gold a very attractive investment avenue,” he told Indoasiancommodities.com in an interview.

Apart from an impending global trade disaster, continuing blues over Brexit also points towards some frightening economic upheavals.

“History tells us that only gold retains its value during wars and upheavals, changes of empires and governments, and times of crisis. Gold is the oldest and most respected currency in the world,” said Somasundaram.

“Add to that the increasing global debt that continues its upward march to 320 per cent of global GDP, and it is evident that interest rates are on a downhill for some time,” he added.

The big borrowers include the US government and corporations in China. US firms have leveraged up too. These debt clouds have restrained central banks to increase interest rates.

The markets had expected the Federal Reserve to follow through on plans to raise rates in 2019, but as it became clear that any further hikes would slow the already weakening global economy and trigger turmoil in the markets, those expectations have receded of late.

And what happens with global interest rates with a direct bearing on local rates? “If global interest can’t increase much, then neither can Indian interest rates,” Somasundaram added.

India’s gold market is driven primarily by the consumption and fabrication of the yellow metal. Both have a significant impact in terms of economic value add, employment, contribution to foreign exchange earnings, and the trade balance.

A report commissioned by the World Gold Council from consulting firm PricewaterhouseCoopers estimated that gold made a direct contribution of more than $30 billion to the Indian economy.  The role and the impact of gold are reflected by the gems and jewellery industry which contributes over 7 per cent of the country’s GDP. 

India is presently the largest importer of gold in the world, consuming one-third of the planet’s supply on an annual basis. In fact, gold is the second-most purchased overseas commodity after oil. It is looked upon as one of the best options when it comes to security and savings for a good percentage of the 1.24 billion people that reside in India. Almost 60% of gold purchases in India is from the rural sector.

In addition, the cultural importance of gold makes it instrumental in ceremonies such as weddings. And it’s not just the villagers who offer gold the amount of significance they do. Even lawyers, bankers, politicians and others purchase gold jewellery during festivals or special occasions.

They consider it a fool-proof financial strategy, and since the real estate and capital markets are losing promise of late, the wealthy section of Indian society is now a new class of gold investors on its own. Though the demand for gold has always been high, the past four years have seen the demand turn into an investment and everyone who has the money goes in for gold. 

Gold Reserves in India increased to 607 tonnes in the first quarter of 2019 from 598.60 tonnes in the fourth quarter of 2018. Gold reserves in India has averaged 457.86 tonnes from 2000 until 2019, reaching an all time high of 607 tonnes in the first quarter of 2019 and a record low of 357.75 tonnes in the second quarter of 2000.

“Despite threats of El Nino and scanty rainfall and the uncertainty of a new government in India, gold will remain the best bet for India. It has already started showing signs of improvement. The gold imports into India during the last quarter has hit a record high. It augurs very well for gold prospects in India,” said Somasundaram.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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