ABSTRACT:
Gold is considered as a good omen in the Indian society and is used in the purposes of marriage or any other religious ceremonies. It is seeked as a matter of pride and wealth in the societal status of the country. Gold plays a pivotal role not only in cultural aspect but also in developing the economy of the country. Circulation or the flow of gold in the market enhances the economy of the country. Gold investment is also made. Previously investment of gold was only found in the physical form. However, with the passage of time investment in gold can also be found in the digital form like in the form of gold traded mutual funds or gold bonds. The paper deals till with the role of gold in the Indian Economy market and that whether investment made in gold is a worth or waste of time and money.
The authors of the paper portray the impact of Covid 19 in the sector of gold. Researches has been made as to whether the investment that are made in the gold sector is fruitful than other investment in the era of the pandemic? Comparative analysis has been made between investment in share and that of investment in gold. Conclusion and suggestions have been put forward which the authors of the paper thinks fit that would create an upliftment of the Indian Financial Market and the Indian Economy.
Keywords - Gold , Investment , COVID-19 , Economy
INTRODUCTION:
Gold being considered as harbinger of positivity in India in various rituals and ceremonies plays a crucial role in the Indian economy. Fabricating and utilizing gold is the most essential element of the Indian Gold market and thereby, adding up to the foreign exchange earnings and in trade balance.[1]
The gold market has an importance in relation to the economic value add. However, there are several approaches through which gold creates an impact in the Indian economy such as gold mining, gold refining and gold manufacturing. Social and economic enhancement is caused in India due to the mining of gold. It aids to create framework of investment to a particular area and thereby initiating and supporting the correlated commerce and corporations. In India there are three mines where gold are produced. They are Hutti, Hirabuddini and Uti.[2] In the passage of time, however, the industries conducting gold mining have become minimal[3] On the other side, there has been significant increment in the gold refining sectors. There has been a sharp increase in refining capacity of gold in India. The gold manufacturing industries is deemed to be considered as organized large-scale industries. Mostly small workshops are prevalent in this gold sector in India.[4]
Fascination of gold is prevalent from time immemorial. It is the lucky charm or the lakshmi of every house in India even till date in India and even in other countries. Gold is used to delve into wealth of an individual or act as a security for the future. The price or the value of gold is dependent on two factors i.e. demand of gold and inflation. Demand of gold is mostly high in India. No occasions including marriage in India remains incomplete without gold. India has demand of one-third of the total world demand on gold.[5] Gold act as a hedge in lieu of inflation. The value of gold is subjected to the change of interest rate and market fluctuations.
A high percentage of the Indian population applies gold as a means of security for the future. But the saddest part is India being a country having a high density of population in rural areas as well where only very few people have their bank account and keep gold reserves. Most of the rural population keeps gold with the individual which in turn does not aid in economic transaction. The Government of India, the State Governments or the appropriate authorities should lay stress on this fact and come up with a solution for instance providing support in opening bank accounts of the villagers. Although initiation have been taken by the appropriate authorities but the lacuna still persists.[6]
IMPACT OF COVID-19 ON GOLD AND MINING INDUSTRY:
Besides causing a devastating toll on the health and safety of the citizens, the spread of the Novel Coronavirus, put on a similar detriment to the economy of each and every country it spread onto. The ill-effect of the pandemic and the stretched lockdown was no exception for the gold mining industry and it also had to bear a huge backlash due to the prolonged curfew imposed all over the world. However, as before, gold always has always been a safe harbour for investors when it comes to investing during the times of chaos and mayhem; and this situation was no exception. With no other options of investment at disposal, investors flocked to invest in gold, which positively affected the gold market as investors began investing more in gold-backed electronic traded funds, and according to the world gold council it should have a positive impact on the economy amidst the breakdown as it attracted enormous amount of capital. The impact of these raise in demand was seen during the early period of lockdown when the price of gold rose uncontrollably high and it only went down after there was an announcement of a vaccine as it signalled to the gradual normalcy of the economy.
“What we have seen is the self-balancing nature of the gold market and gold doing what we expect it should; providing liquidity as a solution to the uncertainty,” says Krishan Gopaul, market intelligence manager at the World Gold Council.[7]
Nonetheless, this scenario of rise in the demand of gold as an investment option is not the same for other countries like China, South Africa, etc. however, as per experts, gold industry contributes around 30% of the country’s GDP through its export control. This has been suffering since a long time due to the heightened political controversy and conflict between countries where the metal was largely being imported or exported into. This escalated the rate of gold in the retail sector within the country which deterred investors from investing in gold. The pandemic acted as a catalyst to the already drowning market.[8]According to the experts, all kinds of gem and jewellery items are going to face a steep plunge due to the complete cessation of customs and export operations.[9]
Nevertheless, in all these negativity, digital platform emerged as a positive ray of hope providing a stage for the gold retailers to showcase their jewelleries and reach out to potential customers and at least get their business going. But, since online platform is not much of a comfort to older generation and lack of knowledge and understanding of the internet investment gold, there has been considerable decrease in the sales of gold during the quarantine period.[10] The gold mining companies are no less a sufferer. Many global golds mining company has either shut down completely due to compiled debt or is on the verge of the end.[11] Amidst all the bleakness, The Gem and Jewellery Export Promotion Council (GJEPC) promulgated establishment of 50 crore fund for the upliftment and ensure welfare and at the least functioning of the gold sector, and to save it from a complete extinction.[12]
GOLD INVESTMENT : WORTH OF MONEY OR WASTE OF MONEY
Gold is the most adored mental for investment among other metals prevalent. The three most essential features that are looked upon during investment are liquidity, returns and safety. Gold is a hedge against inflation,[13] making it a beneficial investment. With the span of time, inflation occurs during the time when the gold investment is to be returned. Equity investments and gold are inversely proportional to each other aiding advantage to invest in gold.
Previously, investment in gold was made in physical form such as gold coins, jewelleries or bullions. However, with the passage of time new investment schemes have aroused for example, gold exchange trade funds, bonds. Any pattern of pure gold or very close to pure gold is termed as gold bullion. It should be certified on the basis of purity and weight and is provided with a serial number for its unique entity. Any size of gold bars and coins are included within the ambit of gold bullions. The prices of the gold bullions are easily found in the publications dealing with global finance. The gold bullions are available in different shapes and sizes. Thereby, making it suitable to all types of investors. Besides, having such advantages in investment, problem arises in cost of insurance and storage of gold bullions.[14]
Gold exchange traded funds are assets that are based on mutual funds. These exchange funds are traded in a similar manner as that of stock exchange. Investment is made by the investor in form of stocks instead of gold.[15] After it is traded, it is credited with unit that is equivalent to cash in lieu of gold. The aim of investing in this form is widen the financial portfolio in fields such as manufacturing of gold, mining of gold and also in transport industry. Also, it is a simpler method of investment coupled with low amount of cash and requirement of minimal investment. The Reserve Bank of India with the permission of the Indian Government issues Sovereign Gold Bonds with an annual interest of 2.5%. Denomination of the bonds is made in grams and a highest investment of 4kg can be made. The tenure period of such type of bond is for eight years and can be exited from the 5th year. The ownership of gold is received without its actual possession.[16]Gold futures lead to compulsory delivery of gold. These are bi-monthly contracts that arise at the 16th day of the month when the contract is launched and ends on the expiry month’s fifth day.[17]In this type of contract the price is a pre-set on a particular future date. Gold options expire three days prior to the first day of the tenor period.[18]
The utilization of gold in the Indian scenario is based on the needs of the individual. It is required for the purposes of marriage ceremonies or in other occasions. It is more of need-based investment than that of investment-based commodity.[19] Therefore, there exists no suitable or inappropriate time to make investments on gold.
GOLD OR SHARE ? WHICH IS BETTER INVESTMENT
The rate of investment in both the assets, be it gold or share, is fully based on the market rate, however, there is an inverse relationship between both the type of assets, as in, when there is a contraction in the price of the gold there is an upward rise in the price of the shares and the stock market faces a positive change; whereas once gold price start soaring high, the stock market faces a fall off. The main reason behind this antithetical relationship is just the secured and riskless investment option which gold offers to the investors, unlike shares which might enter into recession at the slightest change in the business environment, which is somehow the prime reason as to why investors are always sceptical before investing in shares and mutual funds; or to be precise in stock market than when it comes to gold investment.[20]
Another thing which an investor must look upon is the liquidity of the asset in open market. Gold, as being contrary to stock, does often have a very high liquidity in the market, as stocks will go down during recession or any lay off period but it is not the case with gold, which, unlike stocks, always have a high value and it can be purposefully used during testing times.[21] As the pandemic does not show any sign of slow-down, neither the vaccine is not going to be marketed soon, there has been an persistent slow-down of the economy causing fear among economist of the worst-ever recession, stock market has nearly crashed while the gold price started soaring high due to an increase in shift of investment trend from high risk investment options to high liquidity investment option, and gold, being the first-ever preference of the investors, in this situation.[22]
The third reason of gold being a better choice for investment, is, in order to successfully invest in share market and gain profit out of that, is to know the market by heart. By saying that, we are basically trying to put our focus mainly to the current situation. The time when the worldwide lockdown started at the onset of the pandemic, the share market crashed and the prices of the stocks dropped down to its lowest. Many novice shareholders and brokers, with the apprehension that the situation will worsen, and they might loose more with the hope to gain, withdrew their stake and began investing in gold whose price started soaring high due to the decline in share price. If we consider the present situation as on date, although the pandemic has not yet given us any relief, but as the economy has started to get back to ‘new normal’, the share market is also gaining back its momentum gradually and the gold prices have also gone down than before. Now, those investors who had withdrew their stake then, in the fear of more loss, became the ultimate losers, at the end. Thus, a strong grip of the market functioning and structure is necessary if anyone wants to invest in stocks, which is not required in case of gold. Gold, has always been the most valuable asset and will not lose its worth even in times of pandemic.[23]
Last but not the least, an investor should always have a diversified investment portfolio, which indicates that the investments should not be interconnected with each other in any respect. It not only gives a steady growth in long term profit making but also draws a stability and a sense of satisfaction within the investor which encourages him to invest his money more.
CONCLUSION/SUGGESTIONS:
The Gold (Control) Act, 1968 has been repelled due to the various lacunas that existed. In India there is Gold Control Policy that is supervised by the Reserve Bank of India. The policy should be governed in such a way that the objective to regulate proper supply of gold is fulfilled. Strict measures should be taken as to reduce smuggling and the demand of gold in the Indian scenario. The domestic price of the gold should be reduced in order to make it affordable for a larger group of people thereby increasing the flow of gold in the market which in turn will raise the economy of the country.
Thus, it can well be summed up that since a long time, gold has topped the investment list of the investors and has always been an important factor in determining the health of the financial market of a country; whereas stock and other types of investment have always been of second priority when it comes to risk-taking and liquidity and volatility of the asset. However, given the situation, it is always advisable to find a cheaper investment option, keeping in mind the uncertainty and dilemma under which we are swimming across through the days of the pandemic, the end of which nobody has any idea of. A well-planned and well-structured form of investment is what is needed during these hard times else one would have to incur huge loss which would not be a positive sign for the economy as well the investor himself. Therefore, apart from being a status symbol, gold has, since long attracted the investors as a low-risk, stable investment option and in turn, have also quite positively affected the financial market, since it is the only type of investment which has shown a positive growth, amidst the breakdown of almost all sectors of the economy.
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[2]. Nicole Rashotte, Gold Mining in India investingnews (2019), SOURCE (last visited Oct 12, 2020).
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[4]. Ibid
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[18]. Ibid
[19]. Sanjeev Sinha, Gold Investment in India: Is this the right time to buy or invest in gold? Financial Express (2020), SOURCE (last visited Oct 14, 2020).
[20]. comparison gold Vs share market: which is better for investment, Business Insider (2020), SOURCE(last visited Oct 16, 2020).
[21]. What is Liquidity and Why is it Important for Investing in Gold and Silver Assets?, GoldSilver (2020), SOURCE (last visited Oct 16, 2020).
[22]. Anuj Gupta, Equity vs Gold: Which is a safer bet to invest in volatile markets? Financial Express (2020), SOURCE (last visited Oct 16, 2020).
[23]. 2020, SOURCE (last visited Oct 16, 2020).
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