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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 jewellery 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 jewellery product, they lock in the gold
price ahead of time.
Probably the biggest change we face, though, is that
customers are more focussed 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 for 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.
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