India is looking towards a Diwali glittering as ‘gold’ this year. With the drop in price of the yellow metal, markets are seeing reinvigorated demand from retail consumers. It is customary to buy precious metals like gold and silver on the occasion of Diwali to propitiate Lakshmi, the goddess of wealth.
Gold in India has been a mainstay of saving in traditional Indian society but Gen-X has maintained the traditional habit of putting some savings in gold as an asset through paper gold and Exchange-Traded Funds (ETF).
The data also proves the logic of traditional wisdom. Gold purchase on Dhanteras in the past 10 years yielded annualized returns of 6.56% till now. This is higher than the annual rise of 5.6% in the Cost Inflation Index (CII) in the past ten years. CII is an indicator of the increase in the cost of goods and assets due to inflation.
The gold bought between 2015 and 2020 has bought double-digit returns while the gold prices have strangled in past one year. All the more reason for a bumper purchase of gold this Diwali.
Gold prices that had touched a peak of Rs 56000 per 10-gram level were hovering around Rs 49200 in India on October 31. “Gold jewelry demand in festive season has increased by 58.6% to 96.2 tonnes while investment demand in bars and coins have also grown by 18 percent. Softer gold prices have generated significant consumer interest in the Diwali festival season this year,” Somasundaram PR, Regional CEO of India of World Gold Council said quoting the Q3 global demand trend report.
Though gold has been a trusted asset class in the past decade it has paled in comparison to the stock market. BSE Sensex has risen nearly 13% since October 2011 but advice to keep gold as one of the assets in the portfolio to hedge against inflation and a cushion against market volatility has remained timeless wisdom.