Dr Betsy John* from Kerala's Idukki has been buying small quantities of gold ornaments during the last five years at regular intervals. This came in handy during her daughter's marriage recently.
"I ensured that the gold jewellery that I bought had designs that would not go out of fashion even after years. I kept the gold ornaments that I purchased in the bank locker and withdrew them only during my daughter's wedding last month," she said.
Dr Betsy is not alone.
Despite gold prices hitting record highs -- Rs 6,010/gram, or Rs 48,080/sovereign early this week -- there seems to be no loss in glitter when it comes to the Malayalees' obsession with gold in Kerala.
According to the World Gold Council's recent report, the Indian demand for gold is expected to rise to 800-900 tonnes in 2024 from 745.7 tonnes in 2023. It is estimated that Kerala's demand for gold alone is around 20% of that or a whopping 160-180 tonnes.
Higher prices for the yellow metal, however, are forcing Kerala households to adopt different strategies to keep their fetish for gold alive and kicking.
100% returns in 10 years
"Many people are now buying yellow metal in small quantities, either in the form of gold coins or gold bars. No asset class, including real estate, has given the kind of return that gold has given in the last 10 years in Kerala," claims S Abdul Nazar, treasurer of All Kerala Gold and Silver Merchants Association.
From Rs 22,240/sovereign (1 sovereign or pavan in Malayalam equals 7.988 grams) on March 31, 2013, gold prices crossed Rs 44,000/sovereign on March 31, 2023, a nearly 100% growth in a decade.
"We are also seeing families gifting only a small portion as gold jewellery and remaining in the form of gold coins or gold bars to their daughters during marriages," he said.
Kerala is home to about 15,000 jewellers, of whom 7,000 have Rs 40 lakh and above turnover per annum, and are registered under the All Kerala Gold and Silver Merchants Association.
Price pressure could kick in
Unlike the World Gold Council, Jayanta Roy, senior vice-president and group head of ICRA, a research and ratings agency, expects the gold purchases to slow down in the short term due to record high prices.
"Domestic jewellery consumption is sensitive to volatility in gold prices, wherein consumers tend to delay discretionary jewellery consumption during periods of high volatility in gold prices," he said.
ICRA expects the domestic jewellery consumption (in value terms) to grow by 10–12% in the year ending March 31, 2024.
"While consumption growth is estimated at around 15% YoY in H1 FY2024, the growth rate is projected to be slower at 6-8% YoY in H2 FY2024 due to sustained pressure on rural demand owing to high inflation and rising gold prices," Roy said.
The south Indian states account for nearly 40% of the total jewellery consumption in India. Within the region, Kerala and Tamil Nadu have traditionally been the larger consumers of gold jewellery owing to higher per capita incomes and lower poverty rates.
"Kerala’s jewellery consumption is also aided by healthy remittances from the Middle East," he said.
An abiding fascination
Malayalees' fascination with gold is embedded within the state's cultural ethos, said T S Kalyanaraman, managing director of Kalyan Jewellers.
"Gold holds a significant place in the religious and social spheres, from weddings to festive occasions such as Onam and Vishu; gold jewellery purchases are driven by cultural beliefs," he said.
Nazar, who runs Koickal Jewellers in Kollam's Karungapally, echoes the sentiments: "From the birth of a child to education initiation to puberty, marriage, and even, in some cases, deaths, gold is an integral part of the Malayalees' psyche."
ICRA's Roy said the wedding jewellery segment, which accounts for nearly 50% of the total domestic demand, continues to be a strong demand driver despite rising prices.
Kalayanaraman, however, said Malayalees' design preferences change every 100 km in the state, and that makes a jeweller play an important role in catering to a specific region.
"As an entity founded in Kerala, we understand the importance of following a hyperlocal strategy, to appeal to local consumers from different regions. Jewellery is a nuanced trade," he pointed out.
Record prices good news for gold loan companies
Another key element in Kerala's gold story is the booming gold loan market.
According to the latest annual reports, three Kerala-headquartered NBFCs hold nearly 300 tonnes of gold. While Muthoot Finance holds 180 tonnes of gold, Manappuram Finance possesses 58 tonnes of bullion. For, Muthoot FinCorp, the figure is 55 tonnes.
"With prices rising to new records, we are seeing more gold coming to the pledge market. This is because the realisation per gram has increased," said Umesh Mohan, executive director and CEO of Indel Money, a fast-growing gold-loan company. "Simply put, more disposable income to fulfill their needs."
Kerala is a big market for gold loans, and as per the statistics available from the State Level Bankers' Conference (SLBC), the total outstanding gold loans in the banking sector (public, private, and cooperative banks) stood at Rs 72,863.74 crore as of September 2023.
The major players in the organised banking sector are Canara Bank (Rs 16,776.18 crore), followed by State Bank of India (Rs 14,990.27 crore) and Federal Bank (Rs 8,112.80 crore).
In a conference call with analysts, George Alexander Muthoot, managing director of Muthoot Finance, said the NBFC will report a 15% growth in the 2023–24 financial year for gold loans. What happens when the gold price increases is that customers will get the same amount of loan by pledging a smaller quantity of gold.
"When the gold price goes up, people need to bring in only less gold for the same amount of loans. Because when the gold price goes up, for the new loans, instead of bringing 50 grams, they need to bring only 48 grams," he told analysts last month.
According to Mohan of Indel Money, the price rise has also seen existing customers renewing their gold loans with the company, and borrowing more money with the same amount of gold. "They will close the existing loan, and go for a fresh gold loan as the realisation per gram is higher," he said.
Meanwhile, Dr. Betsy has a note of caution for parents buying gold jewellery as an investment.
"You need to ensure that the gold jewellery is 22-carat gold. There's no resale value for 18-carat gold," she said. Also, the customer will lose 25% in value-added charges or 'making costs' during resales.
"So, it's always better to buy in gold coins or bars, if the real purpose is investment for the future," Dr Betsy said.
(* name changed)
