TWELVE-YEAR-OLD Anand Balachandran, son of Oman-based engineer V. Balachandran and his accountant wife Sudha Pillai, literally breathes and sleeps football. As the Qatar FIFA World Cup began, Anand, who plays for his school team and is an ardent fan of Lionel Messi and Cristiano Ronaldo, wanted his parents to take him to Qatar to see his heroes in action. But entry tickets were not available, and, moreover, the couple was not in a position to avail leave.

On his birthday in the first week of December, Anand's parents surprised him with a football-shaped platinum pendant with a thick gold chain from a limited edition football jewellery collection. "It cost us over ₹1 lakh. We know he won't be able to use it regularly, wear it to school or playgrounds, but he will cherish this birthday gift forever. Actually, our plan was to buy it as a saving for his future studies," say Anand's parents, both working in Oman for the last 10 years.

And they are no exception. Gold is set to emerge as one of the most preferred savings instrument for 2023. Experts say more and more people are increasingly looking to invest in non-physical forms of gold, and other precious metals, including platinum, silver and laboratory made gems and jewellery. "While gold jewellery continues to be the most-preferred investment option, we are seeing an uptick in demand for platinum, diamond and dual-tone platinum jewellery designs, which are likely to continue in the New Year," says Ramesh Kalyanaraman, executive director, Kalyan Jewellers.

The Investment Option

But the big focus in investing is likely to be on gold — the safest haven amid uncertain economic conditions. The global economy is at an inflection point after being hit by various shocks over the past year. As central banks aggressively fought against inflation, gold emerged as one of the most preferred investment options. Going forward, this interplay between inflation and central bank intervention will be key in determining the outlook for 2023 and the yellow metal's performance, according to the World Gold Council (WGC).

Globally seen as the most sought-after strategic long-term investment asset during uncertainties and recessions, gold is projected as top option also in India, the second-largest market after China. "A combination of recessionary conditions forcing the U.S. Fed to ease monetary conditions along with high inflation will be extremely bullish for gold," says Chirag Mehta, CIO, Quantum AMC.

India's total gold consumption is expected to be around 750 tonnes in 2022, 6% less than last year’s 797.3 tonnes. This is mainly due to inflation hurting demand in rural markets, which account for two-thirds of the country’s total demand, says WGC.

According to experts, a mild recession and subdued earnings (historically gold-positive), weakening of the dollar as inflation recedes, possible geopolitical flare-ups, improvement in Chinese economic growth boosting consumer demand for the yellow metal, and pressure on commodities due to a slowing economy will accelerate the demand for gold in 2023.

Lingering geopolitical uncertainties driven by the Russia-Ukraine war and subsequent sanctions, rate hike in the U.S. and recession fears globally drove up international commodity prices in 2022. Historically, gold is seen as the safest investment during uncertain times. In India too, prices of the yellow metal went up from ₹47,110 per 10 gram on December 9, 2021 to ₹54,259 on December 9, 2022, a 15.3% rise year-on-year. Contrast this with the rise in benchmark indices, the Sensex and the Nifty, which gained 5.8% and 5.7%, respectively, during the period. "Despite a shaky macroeconomic environment, demand during the year has reflected gold's status as a safe haven asset, underscored by the fact that it has outperformed most asset classes in 2022," says Louise Street, senior markets analyst, WGC.

Any escalation in the Russia-Ukraine conflict in 2023 would result in risk aversion and divert investment flows to relatively lower risk assets such as gold, says Mehta of Quantum AMC. Additionally, rising inflationary pressures due to disruptions caused by the war may result in a further uptick in inflation. The economy has already started slowing down and higher inflation could cause stagflationary pressures, which is good for gold, adds Mehta.

Digital Gold to Gain Momentum

Gold exchange-traded funds (ETFs), units representing physical gold either in paper or dematerialised form, are also an investment option to explore in 2023, say experts. People are increasingly realising the additional costs of owning physical gold such as locker charges, retail premium, storage concerns, and lower buyback value. Gold ETFs are an intelligent choice given that they are highly liquid, incur no making charges, and ensure exposure to insured and pure gold.

According to the Association of Mutual Funds in India (AMFI), the number of gold ETF folios went up from 3.1 lakh to 46.67 lakh between September 2018 and November 2022. The net asset under management (AUM) of 11 active gold ETF schemes moved up from ₹4,385 crore to ₹20,833 crore, while their combined holding increased from 15.1 metric tonnes to 38.6 metric tonnes, a 156% jump, during November 2018-November 2022. Though folios, AUM, and holding of gold ETFs in India have grown considerably, it is still very small compared to global ETF holding. According to WGC, at the end of November 2022, India's holding was just 1.1% of the global total of 3,477 tonnes. That leaves enormous potential for growth.

To boost digital savings and utilise unused gold, the Securities and Exchange Board of India and the Bombay Stock Exchange recently introduced the Electronic Gold Receipt — physical gold is first deposited in a vault, after which the vault manager issues an electronic receipt which is then credited to the investor's demat account and can be traded on the exchange.

Domestic demand for gold increased up to 80% over the past few years, thanks to measures taken by the government to boost the sector, says Somasundaram P.R., regional CEO, India, WGC. "Centre has put in place the Gold Monetisation Scheme, Sovereign Gold Bond Scheme, and Hallmarking Scheme to safeguard consumers when they purchase gold, boost export competitiveness, and promote India as a significant global market for gold jewellery," he says.

Silver Shining

If gold as a savings option in different forms is gaining traction in India, so is silver, another precious metal, which has had a roller-coaster ride in 2022. Prices increased to ₹72,000 per kg in March and then went down, but recovered to over ₹60,000 in December. Globally, silver prices fell around 10% this year to $21 an ounce, as the greenback strengthened and investors sold silver against rising U.S. bond yields.

India is currently the world's third-largest physical investment market for silver after the U.S. and Germany. Once industrial consumption of the metal picks up, it will be a good investment bet. India's silver demand is expected to continue in 2023 as well. The key demand stimuli will be industries such as solar panel producers and auto makers who require high levels of electronics in vehicles. Auto makers account for 5% and solar panels makers around 10% of silver demand in the country.

Global demand for silver is expected to rise 16% in 2023, according to U.S.-based The Silver Institute. Use of silver by the industry, for jewellery and silverware and for bars and coins for retail investors, is also forecast to reach record levels.

India's physical investment in silver, which rose 219% to around 858 tonnes in 2021, is also growing. However, this was mainly due to the depressed Indian market in 2020, affected by widespread liquidations. Despite this, investment demand remained well below historic norms as in the 10 years to 2020 — demand averaged around 1,860 tonnes per annum, with Indians buying 18,591 tonnes of silver during this period.

"In India, sales of silver bars and coins more than tripled, with much of the growth taking place in the second half. However, this was from a very weak base in 2020, with volumes still well below pre-Covid levels," according to the World Silver Survey 2022 by The Silver Institute. Similarly, silverware fabrication globally rose 32% in 2022 and much of the growth was driven by India (around 40%). In 2023, jewellery fabrication is forecast to increase 11%.

The growing popularity of e-commerce apps, including Amazon and Flipkart, selling silver bars online, and digital silver launched by Digigold and Kredx, are also contributing to the growth of silver sales in India. Digital silver can be bought online and stored in a vault. Once purchased, it can be sold directly for cash or redeemed in a physical form. In 2021, SEBI allowed the launch of silver ETPs (exchange-traded products). "Although several mutual funds issued silver ETPs, three are active currently — Aditya Birla Sun Life, Nippon India and ICICI Prudential, with a combined AUM of ₹630 crore as of February 2022," says the World Silver Survey.

Simply Next Gen

There has been a significant transition in spending in jewellery, thanks to millennials and Gen-Z consumers. Design and fashion trends are constantly evolving in the digital era, and jewellery shopping will be increasingly influenced by these trends. Young consumers prefer minimalism and simplicity, which will create demand for fine jewellery, intricately studded with precious stones, says Kalyan Jewellers' Kalyanaraman.

Provisional gross exports of studded gold jewellery rose 23.43% to ₹22,544 crore during April-September 2022, against ₹18,265 crore a year ago, according to data from the Gem & Jewellery Export Promotion Council. These trends are likely to continue in 2023 as well.

With uncertain times in store for global economies, precious metals, including gold and silver, will maintain their sheen as safe investment options.

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