Gold assets can support economic growth: WGC

It is estimated that India holds around 22,000 tonne of gold valued at over $1 trillion. Somasundaram PR, managing director, India, World Gold Council (WGC), says this asset can be used to support economic growth by putting it to work for the economy, creating jobs, developing skills, generating exports and revenues.

Q: With an estimated stock of more than 20,000 tonne of gold in India, how can it be used for economic value?

A: It is estimated that Indian households have around 22,000 tonnes of gold stocks, it is imperative therefore that we find ways of mobilising and monetising the nation’s gold stock to support economic growth for the benefit of the economy. Our vision 2020 for the Indian gold industry is to transform the country into the world’s jeweller, by increasing exports five-fold and doubling employment in the sector.

To do this, artisans need to be empowered by training and skill development and finally, 40% of the country’s gold demand must be satisfied through domestic stocks, mining and have a stable policy regime. As a nation, we need to focus on measures that will unlock the potentially transformative value of the gold stored in millions of private households in order to fund nation’s growth. For significant majority of Indians, gold is a ‘way of life’ and India’s prosperity can be ‘advanced by gold’.

Q: What has been the impact of import curbs on gold on demand and unofficial supply?

A: India was forced to impose curbs on gold, which is the second-biggest dollar expense in its import bill. The government did this by hiking the import duty of gold to 10% from 2% as the country was witnessing high trade deficit and short-term rupee volatility.

Organised players have seen their margins squeezed and supplies severely constrained and this has affected their investment plans and livelihood of artisans. Sharp import hikes in recent months were not triggered by changes in demand estimates but more likely to be as a result of an expectation of additional curbs. But with the removal of 80:20 import rule, the official supply situation must now ease to benefit genuine exporters and manufacturers of gold jewellery.

Q: What is the purpose behind setting up a Gold Policy centre?

A: The India Gold Policy Centre, a first-of-its-kind initiative has been formed with an aim towards conducting cutting-edge research on all aspects of the Indian gold industry. The purpose is to develop insights into how the significant stocks of gold that India owns can be used to advance growth, employment, social inclusion and the economic wealth of the nation.

Q: What are the demand trends for gold in India in the coming months?

A: The demand for gold jewellery in Q3 2014 was up 60% from Q3 2013, reflecting partly the intrinsic nature of demand and partly the unusually low base of Q3 2013 that was impacted by the introduction of a range of duty hikes and curbs.

The demand for gold around Diwali mirrors the general optimism we see in India in relation to the economy, reinforcing the average household saver’s traditional faith in gold and the increased economic relevance of this asset class due to various uncertainties on the horizon.

It is now beyond debate that import restrictions have had little impact on the demand for gold and yet have strengthened the unauthorised supply channels and seems at odds with the overall sentiment that defines the new government’s business approach. The policy environment should allow the gold trade to operate in a free and transparent manner, enabling the industry to embrace a bigger vision of becoming the “jeweller to the world,” in line with the Indian Government’s “Make in India” ambitions, while at the same time enabling the country’s natural affinity with gold as a savings asset to become embedded in the financial sector — ensuring that gold becomes a fungible asset.

We expect gold demand to be around 850-950 tonne for the full year 2014. It is unlikely to be at the top end of the range. We expect it to be either at the lower end or the central point in this range.

Q: How should individuals view gold as an asset class?

A: A range of social, cultural and economic factors ensure that gold remains a preferred asset class across millions of households regardless of supply restrictions. It is imperative therefore that we find ways of mobilising and monetising the household savings imbedded in gold stocks through the formal financial sector to support economic growth for the benefit of the economy as a whole, in a way that could unlock the potentially transformative value of the gold held in private hands across the nation.