'Gold’s rally is not just about wars, it’s fundamentally linked to $40 tn US debt': WGC India CEO Sachin Jain

Gold's performance over the last two and a half years is not just about geopolitics or wars, said Sachin Jain, Regional CEO, India, World Gold Council, in an interview with ET Online. "It is fundamentally linked to US debt, which has crossed $40 trillion."

Gold’s evolving role as an investment, the drivers of its global rally, India’s demand outlook, changing consumer preferences and the metal’s future as a technology-enabled asset. Edited excerpts:

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How do you see the Democratic victory in the US midterm elections affecting gold prices in India over the next few days?

I think today the world is so interconnected that everything impacts everything. Over the last two to two-and-a-half years, much of the global conversation has revolved around US leadership, both positively and negatively. Periods of uncertainty, whether geopolitical or economic, tend to have an immediate impact on gold. We have already seen gold rise post the results.

However, we are also entering the most important week for gold consumption in India. I was hoping prices would remain stable because, at these levels, the Indian consumer is ready to buy. We foresee a very strong Diwali.

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Indian consumers are unique. When prices fall, we see it as an opportunity. When prices rise, we see that as an opportunity too. At current levels, gold remains attractive to Indian buyers. If prices continue to rise, I think it could have a positive impact on purchases over the coming week, when people traditionally buy physical gold for auspicious occasions.

What is the World Gold Council's outlook for gold demand in India this Dhanteras and Diwali?

At current prices, we think a large section of consumers who felt they missed the gold rally over the last year will return to the market in a big way. It is also an opportunistic buy at this stage, considering that gold prices were around ₹1.85 lakh per 10 grams seven or eight months ago.

Another major driver of demand has been central bank purchases, not just by the Reserve Bank of India but across developing markets. This continues to be a strong source of demand, partly because confidence in dollar-denominated assets and reserves is changing. De-dollarisation is a reality we are witnessing.

How should investors look at gold over the next five years? Will it continue to play a significant role in portfolios, and what risks should they consider?

From a structural perspective, there is also merit in diversifying portfolios in a scientific manner. Our recommendation has been to allocate 10-15% of financial assets to gold. This can provide significant benefits in terms of liquidity and overall portfolio diversification.

We need to understand how the role of gold has changed.

Thirty years ago, central banks were net sellers, and jewellery was the predominant source of gold consumption. Today, demand is much more diversified, both geographically and across sectors.

Developing markets such as India, China and the Middle East now account for about 74% of annual gold consumption. Jewellery accounts for only around 30-32% of overall demand, whereas it was once the dominant category.

Financial demand has also grown significantly. Last year, financial consumption crossed $6 trillion, accounting for around 40-45% of consumption. More than $200 billion worth of gold was traded daily, making it one of the most liquid assets on the planet.

Central banks and technology are the other important sources of demand. Today, technology accounts for about 8% of gold consumption. As artificial intelligence becomes more widespread, the use of gold in faster AI chips is expected to grow.

So, there are now four or five reasons why gold is consumed. Given geopolitics, wars, stronger nations and continued central bank buying, I think gold's relevance is here to stay and grow.

However, investors should keep two things in mind when looking at gold over the long term.

First, they should understand the economics behind the rally. Gold's performance over the last two-and-a-half years is not just about geopolitics or wars. It is fundamentally linked to US debt, which has crossed $40 trillion.

Western economies, led by the US, are printing fiat currency on a large scale. This has contributed to de-dollarisation and a shift towards holding wealth in different asset classes.

This situation will not be resolved in the next one or two years. It could take seven to 10 years of sustained efforts to bring the curve down. So, gold's relevance is likely to continue.

Second, gold itself is transforming. We believe it will become a contemporary technological asset class. There is significant work happening around tokenisation, blockchain-based source transparency and authenticity.

Gold will offer three important advantages: fungibility, authenticity and portability. It will become easier to move gold from one place to another while establishing its authenticity.

Many asset managers tell me they do not know how to move gold or access it round the clock. These are some of the factors that have traditionally worked against gold. Technology could turn them into advantages.

Over the next five years, gold will be a very different asset, combining its traditional qualities of liquidity and safe-haven status with greater accessibility and transparency.

How does the role of gold in India differ from its role in the US, both as a consumer product and an investment asset?

The difference is significant. In India, almost everyone uses gold, irrespective of wealth, social or economic class, or geography. Rural India accounts for close to 40% of the country's gold consumption. Perhaps the smartest investor in the world is the Indian housewife. Over generations, she has not just accumulated wealth for her family but also created a wealth endowment for the nation.

Just as we have family doctors, we also have family jewellers.

That is very different from the US market, where gold consumption is largely financial, with a significant share coming through digital investments such as ETFs.

Beyond prices, what factors will influence Indian gold demand over the next two quarters, particularly with the weak monsoon?

Prices will certainly remain an important factor influencing consumption. However, there are several other factors at play.

In jewellery, manufacturers and retailers have done considerable work to create products that are lightweight but look bigger. That is important in helping consumers manage higher prices.

However, the industry needs to do a better job of developing products, consumer services and retail experiences that appeal to younger buyers.

By 2032, every second rupee spent in India will be spent by a younger consumer. Is the jewellery industry ready for that consumer? Perhaps not yet.

We will have to develop the right products and do a much better job of preparing for this continued growth. Price will play a role, but design, new products and offerings for rural consumers will also be important.

There are discussions around removing long-term capital gains tax on stocks. Could tax-free stock investments challenge gold's safe-haven status in India?

Gold's importance has remained prominent over the last 25-26 years for several reasons.

Look at 2001, when gold was priced at around ₹4,000 per 10 grams. India consumed about 800 tonnes of gold annually, and we have broadly maintained those consumption levels since then.

The main reason is that per capita income and wealth in the hands of Indians have increased. Our research shows that every 1% increase in wealth held by Indians leads to a 0.9% increase in gold demand.

As India moves towards becoming a developed economy, with per capita income expected to reach $10,000, there will be significant underlying demand for gold.

However, the industry cannot become complacent.

How do you see India's relationship with gold evolving over the next five years?

As India moves towards becoming a developed economy, I believe gold will be viewed in a new light. The industry employs around 7-8 million people directly, apart from indirect employment.

We could eventually be mining our own gold and emerge as a jewellery exporter to the world. Gold will no longer be just a pressure on the current account deficit but could become an important pillar of India's economic progress.

How will investors' relationship with gold change over the next five years?

It will remain strong because of the qualities gold has offered for millennia. Its liquidity, safe-haven status and ability to act as a hedge are not new.

What will change is that gold will become more contemporary, digital, accessible and authentic. As investors become more sophisticated, gold will also become more sophisticated and transparent.