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Safe-Haven Hoarding: Indians Holding on to Their Gold

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Indians are hoarding their gold despite an increase in the price during the first quarter of 2018. Analysts say they are holding onto their gold in anticipation of bigger price increases.

Gold was up around 1.5% in dollar terms in the first quarter of this year. According to the Economic Times of India, the yellow metal appreciated 4.41% in rupees.

Even with that healthy increase, old gold sales in India fell by 35-40% in Q1 2018 compared to the previous quarter. According to the paper, analysts and traders think Indians are holding back selling in anticipation of further price increases, especially if the US and China get into a full-blown trade war.

In effect, we are seeing safe-haven gold hoarding in India.

Association of Gold Refineries and Mints secretary James Jose said tensions between the US and North Korea could also boost the price of gold in the coming months.

“Uncertainty has gone up following the trade war between the US and China, resulting in gold prices climbing,” Sekhar Bhandari, business head for global transaction at Kotak Mahindra Bank told the Economic Times. “The yellow metal can become a safe haven again.”

Analysts estimate Indians hold around 22,000 tons of gold in their homes.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system.

According to an ICE 360 survey last year, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Analysts at the World Gold Council believe rising incomes in India will help drive increasing global demand for gold in the future. According to the 2018 World Economic League Table, India will leapfrog France and England in 2018 to become the world’s fifth largest economy in dollar terms.

A major gold-buying season is coming up in India. Akshaya Tritiya falls on April 18 this year. During the festival last year, Indians bought more than 23 tons of the metal in a single day

Indians understand gold is money. It historically serves as a hedge against inflation and a safe-haven in times of economic distress. Many Americans understand this too, but they feel like they just can’t afford to invest in gold. But if a poor Indian farmer can find a way to buy and hold on to gold, why can’t we?

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