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We've read mixed reports about how lofty gold and
silver prices are affecting demand in India. One month we're told demand is up,
and the next it's supposedly down. I'm not suggesting that official reports
are inaccurate, but it is admittedly confusing and doesn't help us understand
the real trend in the country.
Why should we care about the gold market in India?
Well, let's face it; the nation is one of the biggest consumers of the metal,
a major driver that can give us hints about demand and investment trends,
along with what to perhaps eventually expect here in North America. But
reading third-party reports about India is very different than getting
information firsthand from a credible source in the country. I wanted to get
to the bottom of what's really going on in India by talking to a reputable
bullion dealer who could give me the inside scoop, an up-to-the-moment
dispatch from the front lines, as it were. So I did just that.
Ashish and Rashmi Sand own Savio Jewellery (Savio means "shine" in Italian), a design
studio and jewelry factory in Jaipur, India. They've received many design and manufacturing awards since starting their
business six years ago, winning five awards in just the past six months. They
source gold from bullion agents in Jaipur, who in turn obtain it from dealers
in Hong Kong, Dubai, Mumbai, and Delhi. They have industry contacts, friends,
and relatives that span the globe, from the US and UK to Asia and Australia.
If anybody knows what's happening in the physical gold and silver bullion
markets and the Indian jewelry market, it's them.
In this exclusive interview, you can read what Ashish and Rashmi told me about
unstoppable demand, growing silver interest, budding demand for coins and
bars, reduced selling, shifting trends with women, burgeoning ETFs, and why
they believe a bubble is headed our way…
Jeff Clark: Ashish, tell us about your manufacturing
facility and design studio.
Ashish: Savio Jewellery makes
conceptual jewelry, which can be worn in five or six different ways. It looks
"heavy" but is extremely lightweight. It's also affordable.
We design what you want, for as much as you want to
spend. For instance, one of my customers wanted a necklace and earring set
for her daughter's wedding; based on their budget, we were able to
manufacture a set using 35 grams of gold [about 1.2 ounces].
Jeff: Do you have
any difficulties sourcing metal?
Ashish: We don't face
any difficulties in arranging gold, whether demand is high or low, because
the traders hedge gold on daily basis. We also keep a reserve of gold so that
our manufacturing doesn't slow down if metal isn't immediately available. Our
suppliers of gold don't face any problem procuring gold, either.
Jeff: How would
you describe demand for gold right now in India?
Ashish: We are
seeing several shifts in the trends for gold demand. First, even with the
increase in price, demand is still strong. People have not stopped buying.
Part of this is cultural; wearing gold jewelry in a wedding is a longstanding
custom in India and will not change regardless of price.
In fact, our shops are experiencing increased buying in
spite of higher prices. Previously we would have one or two customers per day
for gold, but now we have five or six. We are getting plenty of new
customers, and see new customers more frequently now.
Second, I would say that awareness among customers has
increased. Now they see jewelry also as an investment and want a proper
return on their investment. Further, due to fluctuations in price, they may
book in advance – i.e., if a customer orders a jewelry product, they
lock in the gold price ahead of time.
Probably the biggest change we face, though, is that
customers are more focused on getting lightweight jewelry, or 14-carat gold
instead of 18-carat gold. This is due to the high gold price. This
adjustment, however, has not affected the desire to own gold.
The bottom line is that the rise in the gold price has
not hampered demand.
Jeff: Are Indians
investing more in bullion (bars and coins) than usual?
Ashish: Indians are
definitely investing more in bullion due to the rising trend in gold and
silver prices. Investing in gold and silver has always been a good idea for
wealth protection to Indians, and now we are seeing them buy more coins and
bars than they used to. Coins and bars are mainly purchased either in wedding
season or during the Diwali festival. Even I purchase gold coins every Diwali
– 10 grams, 20 grams, or any amount.
Another factor is that India has experienced many
monsoons over the last two years, and the farmers are tending to invest their
savings in gold and silver. This is a major factor for the increase in demand
for coins and bars.
Jeff: Is much
reselling taking place right now? Is it higher or lower than it used to be?
Ashish: Reselling
gold has become rare – and this from a country that consumes more gold
than any other and where gold jewelry is a central part of the culture. We
rarely have customers who sell back their gold or silver. Before we used to
have customers who would sell their scrap gold and make new jewelry from it,
but now we don't experience many such customers. I would estimate we
currently have 90% buyers and 10% sellers, and before the ratio was 80% buyers and 20% sellers.
They're not selling, because they hope that in the next
few years the price will rise further and they can get better returns than
what they can at present. Just a few years ago, some customers would buy gold
expecting to sell when the price rose; now those customers are sure gold will
keep rising year after year and are selling only rarely.
Jeff: We've read
about an increased interest in silver in India – tell us what you see.
Ashish: Silver
demand has increased sharply in recent years, as increasing numbers of
investors use silver as a store of value. Customers are also buying silver to
hedge against market losses. While global markets have been uncertain over
the past four years, silver has provided huge returns and has been an ideal
investment. Because silver has provided the highest recent return of all the
commodities, this has attracted the average layman.
Silver demand has also increased for the customer for
whom the gold price is out of reach. Nowadays, if they cannot afford gold,
they switch to silver. So the number of customers requesting silver has
increased.
Silver is also part of gift-giving in India. It is
customary to give silver items as a wedding gift, and there are rituals where
parents gift silver dinner sets to their daughters at their weddings. In
addition to dinner sets, silver is usually found in jewelry, such as a
necklace, earring, bracelet, or rings; gift items such as glass sets and
crafted boxes; and even showpiece furniture.
Last, there is a steep rise in demand for silver in
electronic goods.
Jeff: Rashmi, describe how Indian women view gold. And have you
noticed any changes in how they view silver?
Rashmi: Gold and
silver are firmly embedded in cultural and religious traditions for Indian
women. Over the past decade, Diwali and Akshaya Tritiya have become major gold- and silver-buying
occasions in India. Gold and silver also play an important role in the
marriage ceremony, where brides are often adorned from head to toe in gold
jewelry. This reminds me of my own wedding.
[Rashmi is wearing approximately 500 grams of pure gold
(about 17.6 ounces), including a necklace, earring, a tika
and matha patti on her
head, haath phool in her
hands, bangles on her wrists, nose ring, arm band (bajubandh),
and finger rings.]
So during wedding season, the demand for gold and
silver increases. Our women customers prefer lightweight jewelry instead of
heavy and bulky ornaments. Increasingly, it also appears they now prefer
workmanship over weight when choosing jewelry made from gold. The Indian
custom of women wearing jewelry has not changed, though they have started
accepting 14 carat gold in order to make it more pocketbook friendly. And
people in India wear jewelry to all kinds of parties.
We have also experienced an increased number of women
customers in our shop. They still buy gold and silver jewelry, but now they
prefer jewelry that is of designer quality and looks good. This is the biggest
change I have noticed with women over the past few years; they want jewelry
that is unique. They prefer wearing long earrings – danglers or hoops.
They also prefer multipurpose or conceptual jewelry
– in other words, jewelry that can be worn in different ways. This
attracts the woman customer, as they think they have more jewelry for the
same price.
There is a different culture in south India, where the
people are more bound to gold jewelry than silver. The parents still focus on
giving gold to their daughters for a wedding present. Each part of India has
different customs, but the one thing that remains common is that gold jewelry
is bought by everyone for weddings.
Jeff: Ashish, you've stated you are very bullish on the price
of gold and silver, and that a bubble for prices is ahead; why?
Ashish: To be clear,
we are extremely bullish on the price of silver and gold. We believe that
both will eventually advance into a full-fledged bubble that will surpass
most investors' wildest dreams.
The world is changing and so is the way we invest. Gold
and silver were once considered a marginal investment, worn mostly as jewelry
or something that was stored in banks. Now it is making a comeback and has
become a primary investment asset for many individuals and institutions.
In India, people are very futuristic and are so bound
to the culture that they're buying gold and silver in advance. If they know
that they are going to marry their daughter in three to four years, for
example, they will purchase the gold now instead of waiting when prices will
be higher. This will continue to underpin demand and push the price higher.
Jeff: Any other
trends you see in India?
Ashish: From the
average layman to the high-class educated person, they now want to invest in
gold and silver. In fact, those who were investing in equities have been
switching to gold and silver. Even the gold and silver ETF has become common
in India. This is partly due to rising prices; keeping metal at home has
become riskier, so they can avoid the risks of self-storage by using an ETF.
Even I have invested in gold and silver for my personal
use apart from my business. Instead of buying equities, I now invest more in
gold and silver, with the expectation of getting a good return.
I will conclude by just saying that based on what we
see here every day, we believe gold and silver prices will continue to go up.
Jeff: Thanks, Ashish and Rashmi.
[For more on developing trends in gold and silver,
download the free Casey Research 2012 Gold Investor's Guide.
Reading it will help you refine your precious-metals investment strategy and
increase your wealth.]
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