Gold as an asset class has proved its true potential in every era. At COVID-19 times too, the yellow metal has managed to soar in value while other commodities have taken a hit. Meanwhile, experts, at the panel discussion ‘Rural markets and gold’, reiterated that the gold demand in India is driven by the rural market.
The discussion was organised by the Free Press Journal and SIES. Speaking at the webinar were (in alphabetic order) Nagendra Kumar, Chief Business Officer, NSE; Shivanshu Mehta, Head, Bullion, MCX; Keyur Shah, CEO - Precious Metals Business, Muthoot Pappachan Group; and PR Somasundaram, MD, World Gold Council. The session, which was supported by NSE, East-West Seed and NCDEX (National Commodity & Derivatives Exchange) investor protection, was moderated by R N Bhaskar, Consulting Editor, FPJ.
PR Somasundaram said, “About 60-65 per cent of gold demand comes from the rural market. For the rural market, gold itself is a success story, although, there is a risk involved in moving the metal to remote locations. Other industries should look at gold to understand how they have penetrated into rural India.” He added that rural India should be seen as a big opportunity. “Post-COVID-19, the rural market will integrate faster than one thinks.”
Adding to it, Nagendra Kumar said gold is an asset class where inter-generational wealth transfer takes place. “Rural India will be a big buyer of gold as this year there was a better monsoon. As of August 22, we have received 7 per cent excess rainfall on a long period average. According to the World Gold Council and Thomson Reuters, every one per cent increase in monsoon rainfall above the long-term average, will increase the gold demand by 0.5 per cent.” It is estimated that Indian household sector holds around 25,000 tonnes of gold. “So, in the last year, gold prices have gone up from Rs 35 lakh to 52 lakh per kilo. If 60 per cent is with rural India, that means Rs 25.5 trillion or USD 340 billion (have been added to the value) of gold. It is a positive contribution. It is a notional value but in GDP terms it can be a decent contributor.”
While the demand for gold loans has been on a rise, there has been a rise in gold sales as well, stated Keyur Shah. “The confidence in gold as an asset class is at an all-time high. Muthoot Pappachan Group is a gold loan player. All three business — gold loan, gold jewellery sales and scrap collection (old gold collection) — are doing well — better than pre-COVID-19 levels.” Shah added, “COVID-19 has reinforced faith in gold as an asset class. No one understands gold better than the common man.”
Citing a rise in rainfall, kharif sowing, inflation, tractor sales and other parameters, Nagendra Kumar said, “If you look at all these variables, the outlook for gold is that it is going to be a good season.”
Shivanshu Mehta, Head -Bullion, MCX, said, “Gold is a true asset class — a hedge against inflation. It is real wealth and protects you on a rainy day.” That, in turn, drives demand.