Gold a safe harbour, investment advisors tell clients

By Aparajita Gupta, Kolkata, Oct 25 : With prices of gold expected to shoot up during the Indian marriage season beginning November, portfolio strategists have begun to advise clients to invest in gold as most other asset classes are in trouble following the global financial meltdown.

Every year, prices of gold shoot up in India during the marriage season, which starts in November, immediately after the end of the festival season.

"With stock and real estate markets not performing well, I am now advising my clients to invest in gold as gold prices are set to rise in the immediate future," Kolkata-based investment advisor Bijay Murmuria told IANS.

Murmuria is director of Sumedha Fiscal Services and president of the Association of National Exchange's Members of India (ANMI).

Echoing similar views, Prosanto Chandra, deputy managing director of eastern India's largest jewellery chain, P.C. Chandra & Sons (India), said: "Gold prices will shoot up to around Rs.15,000-Rs.16,000 per 10 grams in November during the marriage season."

At present gold prices are hovering around Rs.12,000-Rs.14,000 per 10 grams. The price of 24-karat gold Thursday was around Rs.12,000 per 10 grams.

Hence, investors can easily earn a return of anything between 15 and 30 percent in just one month, these experts said.

"People have begun to realize that buying gold at the beginning of the marriage season is a good investment option," Chandra told IANS.

However, not everyone is equally optimistic as gold prices have been showing a lot of volatility in recent times.

"The price fluctuations are very erratic. Nothing can be predicted in a market situation like this. No laws work in this kind of situations," Pankaj Parekh, regional chairman
of the Gem and Jewellery Exports Promotion Council, told IANS here.

Chandra believes gold prices will surely rise because while demand will shoot up due to the marriage season, supply of the yellow metal is drying up even as labour costs are increasing.

"We have learnt that some gold mines in South Africa are drying up, which is creating a demand-supply gap, and labour costs too are increasing," Chandra said.

But will not high gold prices affect demand for jewellery and again push down prices?

Chandra did not think so as he believes Indians' inclination towards gold jewellery during the marriage season is quite price inelastic. "High prices will not affect demand for wedding jewellery," he said confidently.

Chandra should know as he is not only the largest maker and seller of gold jewellery in eastern India but also exports to countries like the US, the UK, Turkey, Dubai and Singapore.

Moreover, India is the world's largest market for gold mainly because Indians simply adore the precious metal and, for cultural and religious reasons, buy gold jewellery on most auspicious occasions such as marriage or the birth of a new child or an infant's first rice- eating ceremony and on Dhan Taras, the 13th day of the waning moon in the fortnight that ends with Diwali.

But Parekh begs to differ. "Young Indians are hardly bothered about buying gold on such occasions. We are losing 20 percent of our gold business to white goods and 10 percent to sister businesses, such as diamond and platinum."

With young Indians below the age of 40 comprising the majority of both resident and non-resident Indians, Parekh does have a point there.

Emphasising the point, he said: "During the 1940s, Indians spent as much as 32 percent of their monthly income on gold but today they don't even spend two percent on jewellery."

Both Parekh and Chandra, however, agreed that branded gold jewellery still has a future because young Indians are extremely brand conscious and their purchase decisions are driven by advertisements.

As for most investments that involve predicting future price movements, the jury is out on this one as well and only good old time will tell whether investing in gold is really a safe harbour when a global financial tsunami has all but washed away all asset classes!