STICKER SHOCK

Indian customers thronged jewellery shops during the festive Diwali season this month, but many walked away empty-handed or with a fraction of their usual purchases because of high prices.

Gold prices came close to toppling the 1980 record high of $850 this month but have since dropped back to around $800 an ounce. But gold is still pricey for many looking to buy jewellery sets for festivals and marriages.

“Slowly, people are realizing the value of paper gold,” said Debashish Mohanty, country head of the retail network at UTI Asset Management Company, which runs a gold ETF.

“If you go to a reputed jeweller to buy gold, you always pay a premium,” he added. “But in exchange traded funds, it always replicates the international price.”

Mohanty said that the advantage of not having to worry about securing your gold or the metal purity was expected to attract the rising number of salaried investors in cities.

UTI Asset Management was in the process of tying up with some banks to help expand their ETF client base, he added.

“The investor sentiment is quite strong in favour of gold. Now they understand that there is another class of asset available,” said Gnanasekhar Thiagarajan, director at Commtrendz Risk Management.

“Clearly, the ETF market is slowly panning out to be a decent alternative to an investor now,” he added.

Those looking to make a quick profit may invest in the paper investment rather than jewellery, as Indian households often get emotionally attached to gold given to them on special occasions, Thiagarajan said.

But analysts say the long-term fundamentals are bullish and the metal’s price could touch $900 an ounce by March.

“As we go ahead, people will realize the value of ETFs,” said Vikram Dhawan, head of commodities, Reliance Mutual Fund. “After all, it took one-and-a-half years in the West to popularize. It is still early days here.”

Reliance Capital Asset Management collected over Rs150 crore for its gold ETF this month. It is to be listed by end of November.

Industry officials said that not many rural investors, who account for 60% of India’s gold demand, would immediately invest in ETFs because of the need to have a trading account.

But even if demand picks up in the cities, it would still boost volumes.
“Our aim is to first capture the urban markets,” Mohanty said. “Once that happens, it will spread fast.”