Everlasting lure for gold

In the face of prevalent political and economic uncertainties across the universe, particularly in major developed countries such as the United States and the United Kingdom, the allure of gold as the safe haven stock to hold and the appetite for amassing it has seldom been so sharply focused as in today’s troubled times. With the ongoing global trade war between the fading and fast emerging super-powers such as America and China making little progress, how can the rest of the world remain calm? The latest report of the World Gold Council (WGC) makes quite a revealing study about how countries prefer to place their faith in the yellow metal which was derided as “the relic of a barbaric era” by the renowned economist Keynes. That both nations and the constituents (people) opt to have their safe bets latched on to bullion is demonstrated by the fact that retail investment in coin was mostly made by individuals as a safety measure against turbulent times. It zoomed to touch a five-year pinnacle in 2018 of 236.4 tonnes and demand for gold bars held steady at 781.6 tonnes. Interestingly, even central banks added a hefty 651.5 tonnes to official gold reserves in 2018, the second highest yearly total on record. Global gold mine production too inched up to a new record high of 3,347 tonnes last year, bolstered by a healthy production pipeline.

Net purchases jumped to their peak since the end of US dollar convertibility into gold in 1971 as the swathe of central banks turned to gold as a relieving diversifier from risks than any other form of investments including currencies! This is predicated on the palpable fear that there might be greater currency volatility, given the taut geopolitical situation and trade tensions among major powers with each slapping trade retaliatory tariffs and erecting formal and informal barriers across the free movement of goods.

The added apprehension is that with the mighty US dollar being likely to be buffeted by the unpredictable policy gyrations of the US and the anemic economic recovery in most of Europe, given the lacklustre performance and clash-ridden situation such as in Britain over Brexit or in France over popular uprisings against Macron’s economic policies, the holding of bullion looks attractive as its returns in local currency terms are quite mouth-watering.

Near home, India that always boasts of being the largest consumer of gold is now ranked as being in possession of the eleventh largest gold reserves in the world. India’s overall position in terms of gold holding pegged at 607 tonnes would have been tenth had the roaster covered only countries and not institutions such as the International Monetary Fund (IMF) which is third on the list with total gold reserves of 2814 tonnes.

For the record, the foremost slot is held by the United States which with gold reserves of 8133.5 tonnes is followed by German with 3,369.7 tonnes. Barring IMF, Italy and France finish the top five slots with reserves of a little over 2400 tonnes each. Among the Asian nations, China and Japan possess 1864.3 tonnes and 765.2 tonnes respectively, way ahead of India. The new trend witnessed last year in gold holdings by countries persisted well into the first month of 2019 too with WGC computing that “gross purchases of 48 tonnes and gross sales of 13 tonnes leading to global gold reserves rising by 35 tonnes on a net basis in January with substantial spurts from nine central banks” mostly from the emerging economies.

In India, the lure of gold both for making ornaments for retail sale and also by way of keeping bullion in the form of small sovereigns/biscuits as safe investment bet, remain too strong to be dissuaded by the authorities to wean them away from their entrenched habits. This can be seen from the fact that imports of gold (including gold dore bars) during most of the Modi Sarkar tenures were around 915 tonnes in 2014-15, 968 tonnes in 2015-16, 780 tonnes in 2016-17 and 955 tonnes in 2017-18. The relative slump in the import during 2016-17 might be partly due to demonetization of high denominational currencies clamped by the Government on November 8, 2016. However, the situation resumed its normalcy the very next year.  But the import costs always hovered between 32 to 34.41 billion dollars a year, save during 2016-17 when it cost 27.52 billion dollars as the volume imported was also less.

Although the NDA government fashioned the Gold Monetization Scheme (GMS) to persuade people to make better use of the idle assets in their homes, roughly only 1134 kilograms of gold were collected from the individuals/Hindu Undivided Families during the two years 2016-2018. However, the authorities were able to get approximately 10,872 kilogrammes of gold from temples/trusts/mutual funds/gold exchange traded funds and other entities such as companies and firms under the GMS during these two years!

Though the government claims that idle gold held by households, trusts and various bodies in the country is deposited under the GMS which has benefitted the jewellery industry with the gold gleaned being used to lend gold as gold metal loan, the amount of gold deposited or recycled for the trade was no patch on the gargantuan appetite for the yellow metal and people’s dogged faith in gold as a savior when there is an economic predicament! Unless and until unvarnished campaigns are made by celebrities to dissuade the purchase of the idle asset against their extant promotional campaigns for jewellery shops, more serious results from schemes like the GMS would seldom happen, analysts plaintively say.

The author is a senior economic journalist. Views are personal