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Preferred metal A young woman tries out gold bangles in a jewellery shop at Purasawalkam, Chennai.
Preferred metal A young woman tries out gold bangles in a jewellery shop at Purasawalkam, Chennai.

R. Sujatha and K. Lakshmi

Housewives, investors turn to gold despite the rising prices of the precious metal

Despite the volatility in prices and the inflation, banks and jewellers expect sales to go up during the festival season

The fluctuating stock market has meant that more people are opting to invest in gold instead of in shares, the rising prices of gold notwithstanding. This has meant boom time for jewellery shops and nationalised banks.

Heads of gold associations in the city attribute the steady investment in gold to the culture of buying gold both as ornaments and as a commodity in South India. “As gold can be easily liquidated and converted to cash it is preferred as investment,” says World Gold Council vice president K. Shivram. “South India accounts for 40-45 per cent of the 700-800 tonnes of the precious metal consumed in the country.”

With several large players, Chennai is a major gold trading market, he says. “In four years the price of gold has nearly doubled.” It is the dollar value in the international market that determines the price of precious metals, but that has not deterred the investor, points out N. Anantha Padmanabhan, chairman of the Gold Club of Chennai.

Despite the fluctuation in the value of the rupee or dollar, gold is the preferred metal. “Sale of silver and one gm gold jewellery accounts for only five per cent of the total sales,” says Madras Jewellers and Diamond Merchants Association (MJDMA) president Pravin M. Metha. “Few people sell the gold they already possess. Most people exchange old gold for new.”

Gold is the safest commodity to invest in for the housewife and the investor. “In a situation of negativity, gold has stood very strong as an investment or as a sentimental purchase,” says Uday Kumar Vummidi, the association vice president.

A couple of companies recently launched savings schemes in gold similar to those offered by banks. A customer’s investment in cash is entered in a pass book as the amount of gold the money would fetch. This option has caught the imagination of customers, Mr. Vummidi says.

The fluctuation in the gold prices has not affected the fashion jewellery segment. At Narayana Pearls, the sale of one gram gold has remained steady. “It is seasonal. Only during school exams the sales fall. For the price of 8 gm of gold, you can buy jewellery for the entire family in our shop,” says K. Srinivasan, a manager in one of the showrooms.

The rising price of gold has meant that individuals have to save more to invest in the commodity. Prema Sriram, a resident of Kilpauk is waiting for gold prices to fall. “I am trying to invest in gold for my daughter’s wedding. I am waiting for a dip in price that will fit my budget,” she says.

When V. Hamsa (name changed on request) of Velachery got her daughter married off in July, she invested Rs. 1.50 lakh in gold. “She wanted half of it as gold coins that she could exchange later,” Ms. Hamsa said.

R. Bhuvana of Ashok Nagar now buys silver jewellery as it is affordable and comes in exquisite designs. But H.C. Jain of Purasawalkam prefers to invest in gold. “I would rather exchange old gold for new, instead of selling it.”

Bankers say customers inquire about gold prices every day to ensure that they get the best bargain. In some cases customers have purchased as much as 50gm in a day. The branch of a bank in T. Nagar sold 8 kg of gold coins last month. The officials here attributed it to the festival season.

Though banks offer better prices for those wishing to mortgage jewellery, it is not as popular as buying gold, officials say. In the last three months, banks have raised the lending price from Rs. 500 to Rs. 750 a gram. Banks offer compound interest on gold mortgage unlike the simple interest that is offered on agricultural loan. This deters people from mortgaging gold jewellery though there are those who will renew their old loans as this is a better option, bank officials say.

Despite the volatility in prices and the inflation, banks and jewellery shops in the city expect the sales to go up during the festival season.

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