Indians’ love for gold dates back for centuries. We seem to be a country running presumably to be a superpower but still unwilling to unshackle our age-old belief systems, “investment” in Gold being one of them.

The world economy as we know has been in existence only for last 200 years & in India for just over 65 years. Prior to that there were no markets, no companies, business that one could invest in as a small shareholder. All that one had as an option was precious metals or business limited to their town.

This has changed since the industrial revolution. The opportunities to invest in great companies is now available to every individual. (BTW, how many of you know that Bombay Stock Exchange is the oldest Stock Exchange in the world?)

Coming back to Gold, what makes this a bad choice?

India does not produce gold. So, we waste precious foreign exchange in importing gold & precious metals.

To put numbers into perspective, Indians spent $220 billion (Rs.132000 crores) in last 10 years on gold and precious metals for personal consumption!! Quite staggering isn’t it.

And where does this gold land up? In safes, lockers & temples. It does hardly any good for the economy – generating employment or giving back to the economy as this metal is never put back into circulation. It’s just hoarded for eternity. And a fair amount of this consumption is limited to black economy.

From an honest taxpayers’ standpoint, it does not make a great investment choice.

  • Gold carries an import duty of 10%
  • Making charges are quite high. That’s an instant loss for the buyer.
  • There is significant risk in storing.
  • Quality of gold is always a question mark.
  • Prices of gold have fallen over last 5 years. Barring the last decade, the returns from this metal have been poor in comparison to Equities.
  • From a macro standpoint, if you owe your success in life to the booming IT / ITES / Service sector, this investment does precious little to augment this further. So effectively, this investment is doing precious little at a macro level to increase jobs for yourself or to create jobs for your children in future. What India needs now is more jobs across all sectors (services & manufacturing). With annual per capita income of only $2000 we are far away from being a developed economy. And buying gold is not going to get us anywhere!!

The percentage of Indians investing in equity markets is just about 3-5% v/s over 50% in USA. No wonder that country is an economic powerhouse. There are more entrepreneurs / small business & honest taxpayers to power the economy as compared to India.

I would want you to read this article by Nilesh Shah, MD of Kotak Mutual Fund on our obsession with Gold and its demerits.

http://www.livemint.com/Money/t1QOgC4pEUcILuaov4hzMM/How-we-missed-creating-a-trilliondollar-economy.html

Before I end, I would like to draw comparison with a real life company & this is my favourite story.

Mr. Narayan Murthy started Infosys with Rs.10000/- given by his wife (as the story goes) in 1981. The company listed in 1993 offering its shares at Rs.95/- a piece. The turnover then was about Rs.130 Crores.

We all know what Infosys has achieved over last 20+ years. But to put numbers into perspective:

  • Infosys turnover last year was Rs.54000 crores.
  • Net profit Rs.12000 crores. And almost all of this in precious $$$s.
  • The value of Rs.95 share is now about Rs.6 lacs.
  • It employs over 1.5 lac people.
  • It’s created hundreds of millionaires, both investors and employees.

Please do read this article published in Infosys annual report some years ago:

https://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/AR-2011/Theme-Pages/finance_journey.html

Also, look at the impact it has made to our economy. 1.5 lac people employed, hundreds of offices across the country creating demand in real estate – employment in real estate, lacs of jobs in support services directly & indirectly – transport, food services, infrastructure, housekeeping, maintenance etc etc. The employees in personal capacity buying houses, cars, retail spends, entertainment & leisure spends, investing in stocks, maybe even gold etc.

To compare how Mr. Murthy would have fared if he had chosen to buy gold with that Rs.10000/- in 1981, the value today would be about Rs.1.4 lacs. i.e. annual return of 11.59% (10gm then was Rs.1800/-).

If an investor had invested Rs.10000/- in Infosys IPO in 1993, the value today would be approx. Rs.6 crores. An annual growth rate of 47%!!

Hope you can now see how a business creates value for the economy. If India has to get to a per capita GDP of $20000 (10 x of today) we will have to either be entrepreneurs or invest in business that create value & take us there.

Buying Gold is definitely not an option!!!

**Please do read this article as well. See how our temples can put other countries to shame with their gold hoardings!!

http://emergingequity.org/2015/04/10/modis-gold-rush-to-recover-20000-tonnes-worth-over-760b-from-ancient-indian-temples-family-vaults/