When the world smothers in instability due to war, natural calamity, economic downturn, or personal loss, individuals take refuge in the tangibility, and endurance of precious metals like gold and silver. The ongoing Israel-Palestine war has boosted the appeal of gold, silver and safe-haven assets. As per Multi Commodity Exchange (MCX), the price of silver and gold as of Nov 3 is Rs 71,170 per kg and Rs 56,750 per 10 gm 22 carat respectively. Crisis binds people’s ability to take risks and fetch for more thus, pushing them to safeguard themselves with safe-haven assets. For centuries, empires and kingdoms were built on gold and have held on to their power for acquisitions and trade-offs. From world war, and global economic crisis to natural calamities and pandemics, gold has proven to be a safe bet for many.
The economic distress caused by any crisis has the stock market tumbling which has a cascading effect on gold prices, skyrocketing consequently. Surendra Mehta, National Secretary at India Bullion and Jewellers Association Ltd, says, “The demand for gold is almost consistent throughout the world, maybe 5-10% variation every year. Not beyond that. A major turnaround in more demand happens only during the crisis otherwise it doesn’t.”
Often bought as an heirloom, the precious yellow metal serves as an ‘investment’ and ‘measure of value’. Gold relinquished the role of being used as a monetary standard in developed economies after the outbreak of the Second World War. During the war, many countries measured the unpredictability of the economy in the face of global conflict so they stockpiled gold to safeguard themselves against futuristic economic doldrums. At the end of World War II, a new monetary system called the Bretton Woods, a regime of fixed exchange rates, was created. This system was then broken down in 1971 when the US unilaterally ended its gold standard, which set the convertibility of gold and the dollar to US$35 per ounce.
Psychological Factor
Catastrophes create a sense of fear and trigger cognitive consensus in people to confine in the safety of non-volatile, tangible, and intrinsic worth of remarkable commodities like gold. The heightened emotions – anxiety, fear, and a sense of impending doom, amongst individuals in the moments of crisis make them rush to seek an umbrella of assets that are viewed as bastions of security. Trupti Jamdade (35), a staffer at JJ Hospital, who regularly invests in gold says, “Gold serves the purpose of investment as well as consumption whenever needed.”
The Covid-19 pandemic blew the wind of fear and uncertainty amongst people that many turned to gold as a safety net pushing its price to new highs in 2020. About 60%-70% of India’s gold consumption is in the form of jewellery. The World Gold Council data shows that Indians bought 315.9 tonne of gold-used jewellery in 2020, almost equal to the combined purchases in the Americas, Europe and Middle East. China is the biggest buyer at 433.3 tonne.
Devaluation and inflation that frequently follow can erode purchasing power at an alarming rate.
Investors, thus, seek assets that can shield them from the ravages of depreciating currency. For aeons, gold has been the first choice every time when it comes to currency depreciation.
Class & Culture
Gold has a cultural and social significance in Indian society. During a crisis, individuals buy or invest in gold not solely for financial reasons but as a means of adhering to tradition and societal norms. The psychological tendency to maintain a sense of normalcy and conform to societal traditions during turbulent times can be a powerful motivator for crisis management. In the world of digital dependency, the physical presence of gold safely locked in a vault is comforting. During a crisis, it is a psychological tendency to be desperate to have control over something that assures some level of ‘surety’. Owning something tangible provides a sense of control over any other intangible or digital assets. While this stands true for gold, does it hold true for diamonds as well?
Razzle Dazzle
Everybody’s first choice to buy and invest during a crisis is gold. Mehta says, “During any war or crisis, people buy gold because you can avail bank loans against gold which is not the case with diamonds.” While diamonds are slowly catching up to fit into the ‘investment’ category, they still carry the label of ‘high-class’ and ‘fashion statement.’ Reckoned as the land of Koh-i-Noor diamond, India was one of the major sources of diamonds for the ancient world. Mined in the Golconda region initially, diamonds were primarily used for religious and decorative purposes as they were ‘believed’ to be sacred. After World War II, De Beers launched its famous campaign ‘A Diamond is Forever’ and ‘Diamonds are a Girl’s Best Friend’ in 1947.
The gemstone was linked to love, particularly through engagement rings. This sparked confidence in the consumers and a rise in the demand for diamonds.
Anand Kulthia, owner of Kulthiaa Jewel says, “Gold is as good as cash. It has a fixed value globally and is easy to liquidate. Diamonds have a few limitations. However, with the advent of certification, it is becoming easier as trust is developed by checking the 4Cs properly.”
This is reflected by India’s production of lab-grown diamonds and the country’s evolving market for jewellery. In the South, consumers are more inclined towards plain gold products, 60-70% of which are studded with diamonds and the remaining 30-40% set with precious or semi-precious stones. Diamond prices may not be directly dependent on currency movements but they still offer a form of diversification which is psychologically assuring during financial turmoil. Diamonds are expensive. They have lower resale value. They are bought and enjoyed by people from a certain section of society. No wonder ‘lab-grown’ diamonds are sparkling in the market to satisfy the desires of (wo)men!
Precious Findings
Each time there is war, natural calamity, geo-political instability or economic crisis in the world, the demand for gold, and silver increases
India is the largest importer of gold in the world
India imports 800-900 tonne gold annually
India's gold demand saw a double-digit drop in Q1 of 2023
India is the largest producer of lab-grown diamonds through the CVD technology
India contributes to nearly 25% of global LGD production
PM Modi on his state visit to the US gifted a 7.5-carat, LGD green diamond to US First Lady Jill Biden
During any crisis or war, people buy gold because you can avail bank fundings against gold which is not the case with diamonds.” — Surendra Mehta, National Secretary at India Bullion and Jewellers Association Ltd
