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Indians are probably one of the most steadfast savers in the world. Just look at our love of the precious metal gold. There's so much of it held in private hands - stashed away by the country's housewives and other private owners. Over the years, India has managed to accumulate around 20,000 tonnes of gold in jewelry, coins and gold bars! And if reports are to be believed, India's love for the yellow-metal is set to grow.
As per the World Gold Council (WGC), India's gold demand is set to rise in the second half of 2016. The WGC stated that it anticipates gold demand to return to normalcy during the peak season of weddings and festivals closer to Diwali. The trend, says WGC, will be supported by good monsoons that will positively impact rural demand.
Before delving into conclusions, some of the facts to be noted in this case are as follows.
Two-thirds of demand for gold in India comes from villages, where jewellery is a traditional investment. The demand from this space has seen a downtrend in the past couple of quarters. This was witnessed on the back of two years of consecutive droughts that squeezed farmers' earnings. However, this is set to change once farmers reap the benefit of this year's monsoon.
Further, the December quarter usually accounts for about a third of India's gold sales in a year. This is because it includes the start of the wedding season and festivals - such as Dhanteras and Diwali - when acquiring gold is considered auspicious.
One must also note that gold demand in the first half of 2016 fell 30% from a year ago period. This was due because of the strike by jewelers and higher prices. So, some part of this unfulfilled demand could also prop in the second half of 2016.
So going by the above data and the projections made by the WGC, one can say that demand for gold is set to rise in India. The happening of this would also mean bullion prices rising further from the current levels.
Apart from India, market participants in the global markets are increasing their exposure towards gold as a safe haven bet against the ongoing global volatility. Also, many of the world's most intelligent and successful investors have recommended owning gold. The list includes David Einhorn, Seth Klarman, George Soros, and Stanley Druckenmiller.
A recent entry in the above list is noted investor Marc Faber. In an interview with the Economic Times, Marc Faber stated that he still is bullish on gold as compared to other asset classes. Apart from this, he shared his views on Indian markets and stated why he would rather invest in India than in the US. One of our recent editions of The 5 Minute WrapUp explains why Marc Faber thinks so.
The question is this: Should one increase his exposure towards gold? Will the rising demand push prices higher ahead?
We think that is perhaps too speculative a call to take. While the above projections may stimulate more interest in gold, too many variables influence gold prices.
We recommend our readers to have a little exposure to gold as an insurance against any unexpected global economic turmoil. At the same time, we will continue to weigh the potential returns from the Sensex versus the yellow metal.
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