The role of Gold in Indian Economy Presented By Group: 05 Sameera Gorle Krishna Chaitanya Kesavamattam Avinash Uday Kiran Reddy Ankit Singh 19 Yash Sanap
Introduction: Gold and India On the global front, India is the largest consumer of gold. India accounts for more than 30 per cent of the global gold market. Gold is an integral part of our lives in India. India meets the high demand of gold from its domestic consumers by World Consumption of Gold, 2015 importing it. Source: World Gold Council 20
Gold Consumption in World Gold Consumption(in Tonnes) 2015 984.5 848.9 192.8 123.8 Source: World Gold Council 21 90.2 84.4 India China United States Germany Thailand Saudi Aarabia
Gold Production in World - 2015 Supply (in Country tonnes) China 582.9 USA 335.9 Source: World Gold Council Australia 289.5 South Africa 272.6 22
Demand & Supply Gold Supply & Demand - 2015 1200 44.9% 1000 38.8% 800 50.8% 600 29.3% 400 8.8% 200 8.9% 5.3% 8.8% 4.1% 3.2% 0 India China USA Germany Thailand Consumer Demand Supply Source: World Gold Council 23
Mining and Recycling - 2015 Mining Production 11% 23% 14% 17% 19% 16% Asia South America North America Africa CIS Region Others Recycled gold Because gold is virtually indestructible, all the gold ever mined still exists, apart from a small amount which has been lost. At the end of 2015, there were 186,700 tonnes Source: World Gold Council of stocks in existence above ground. Recycled gold therefore plays an important part in the dynamics of the gold market. 24
Mining over the years 25 Source: World Gold Council
Gold as an Investment item ? Investors in India are basically divided in to two categories : Gold Investors: These people generally invest in them as pure investment purposes for higher return and sell them when the price appreciates Indian Households: They buy gold due to various social, economical, religious and financial reason 26
Determinants for Investment in Gold Gold offers excellent Liquidity 1 Wealth Protection 2 Inherent Value of Gold 3 Gold is Inflation proof 4 Smart Diversification Option 5 Embracing Modern Options 6 27
Gold Investments Liquidity Gold can be easily converted into cash anywhere in the world and it is a very solid and physically visible form of money present. Wealth Protection Gold is ideal for wealth protection primarily because unlike currencies and other financial securities, it has intrinsic value By virtue of its scarcity, has always been a precious commodity Gold is inherently valuable, which makes it the ideal tool for wealth protection Diversifying into gold can be a smart move due to its position in the modern economy. The general trend observed over the past 100 years is that gold is a safe haven investment. Investors park their funds in gold during economic and political troubles 28
Gold Investments Value Appreciation Gold has historically appreciated in value over the long term, it is easily available in a number of forms 29
Gold Investments Future Inflation Proof Investment Protecting Long-T erm Investments from Inflation Independent Demand and Supply Safe Haven during Economic Troubles 30
Gold Investments Smart Diversification Option A portfolio consisting solely of equity investments can offer high returns, but has an equally-high risk of total loss of capital. Diversifying into gold and allocating funds to gold-related investment options can help you balance risk. Other simpler and cheaper options include purchase of units of gold ETFs, and invest in gold mutual funds Moreover, because gold often moves inversely to the stock market and currency values, it provides an especially effective way to diversify. 31
Gold Investments Embracing Modern Options An investor seeking the right balance of stability of investment value, protection of capital, sustainable returns, and low security risks can explore the following gold investment options Gold Monetisation Gold ETFs Gold Savings Funds Gold Accumulation Plan 32
Disadvantages of Investing in Gold Gold doesn’t earn passive income 1 2 Gold can create a bubble 3 Need physical storage and insurance Increases in gold value coincide with local currency 4 devaluation 33
India’s Love for Gold & 50% Gold Demand Age Group: Under Jewellery 25 years Indians own 22000+ TONS of Gold 15 Mn Marriages Bars and coins are always easier to trade expected every year than jewellery over the next decade There is also a lesser degree of emotional attachment to them 34 Source: www.mygoldguide.in
India’s Love for Gold Good Luck Gifts to our Technology Medicine & Gods Prosperity Ayurveda 1 gm Gold in 35-40 phones 35
Why Indians invest in Gold ? Indians are besotted with gold and have been for centuries. Gold was given prime importance by our ancestors as an investment choice for a number of cultural, historical and religious reasons. Also, given the limited investment options available to common people until the advent of modern stock exchanges and large financial institutions, investing in gold also made practical sense. 36
Behavioural Reasons Gold has been the traditional form of savings amongst Indian households for many years. So, people need not be as nervous about fluctuations in gold prices when stock or bond prices move. Buying gold gives a feeling of comfort! Psychologists call this the ‘exposure effect.’ Gold is a real asset. And real assets possess an important characteristic — we can touch and feel them. The touch-and-feel factor is one reason why many prefer to buy physical gold than financial gold. 37
Respect, Status and Prestige – The Social Benefits of buying Gold It is a paradox that has stumped economists for decades – for a country afflicted with severe poverty, Indians are one of the biggest purchasers of gold in the world. In 2015 alone, India imported nearly 900 tonnes of gold – more than any other country and about a quarter of the global supply The reasons are historical, cultural and societal in nature and are very closely tied to the ‘prestigious’ label that is bestowed on gold, in large part due to its beauty and rarity. Gold has enjoyed this exalted status in India since ancient times – rulers and emperors would deck their palaces in gold, and would often donate their weight in gold to the poor as a sign of their generosity 38
Respect, Status and Prestige – The Social Benefits of buying Gold Understanding such cultural and societal perceptions of gold not only help us to resolve the aforementioned paradox, but also highlight the important social benefits of purchasing gold. As a symbol of wealth, as a token of family prestige and as an indicator of social standing. 39
Gold as Social security and its role in Indian Economy The OASIS (Dave Committee) report indicates that nearly 90 per cent of the Indian workforce, particularly the self-employed, is not covered by any retirement scheme that enables savings for economic security during old age. Transfer of ownership is also very easy. In the case of gold ornaments one can say that possession is ownership. Gold represents the most liquid form of asset in India. One can also say that gold is the most politically correct metal which can be owned. Gold ornaments will work as social security for a housewife in case of major emergency or after the death of the head of the household Gold is used as collateral in SMEs. According to Dr Vaidyanathan, small businesses are engines of our growth and one of the major reasons for the increased demand for gold more in the form of Coins and bars is the scarcity of credit from banking sector for small and tiny businesses. 40
Role of Gold in Family Budget Average Distribution of Consumption Earnings : 100 35 Consumption: 80 30 30 Savings : 20 25 Jewellery Value in 20 17.84 Consumption : 8.13%*80 = 15 6.50 10.53 9.92 10 8.13 7.07 Effective Savings : 20+6.50 = 6.38 5.52 4.61 5 26.50 0 Source : FICCI Gold Survey 41
Percentage Share of Gold in Imports 14.00% 12.49% 12.00% 11.44% 9.93% 9.45% 10.00% 9.61% 8.11% 7.79% 8.00% 8.34% 6.94% 7.26% 6.65% 6.00% 6.26% 4.00% 2.00% 0.00% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 42 Source: www.tradingeconomic.com
Announcements related to gold in the Budget 15-16 Government has taken three steps to bring down gold imports: Gold Monetization Scheme A Sovereign Gold Bond Introduction of an Indian Gold Coin Objective:- To reduce the Current Account Deficit by lowering countries reliance on Gold imports 43
Gold Monetization Scheme Replace both the present Gold Deposit and Gold Metal Loan Schemes Customer Deposits Ornaments or Gold bar Gold is assayed and melted at RBI mint Gold bar or Coin given back to bank Banks lend Gold to Customer gets back his jewellers and earn interest Gold with interest 44
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