The Spiritual Gold

Divergence
There are many reasons for the divergence between what happens to gold in India and worldwide. Gold is always a buy in India compared to the world. No wonder the state considers it a problem, puts restrictions on imports and is concerned on how to address this obsession. If there is something at the top of the consumption list, it’s gold. Having grown up in India, I somehow can relate a bit more. Nicknames came from gold, too. Sonu or Sonia just might be the most popular nicknames in India, meaning, coming from gold.
Spiritual investing and risk
The question I am deliberating here is a bit different. With Shariah investing pretty popular now and Shariah indices available across the world, we have already connected societal virtues with investing. Materialism and spiritualism for believers can be pretty inseparable. So, are elements of spiritual investing key in defining and understanding risk? Are these elements specific to an asset like gold? Does spiritual investing alter the basic investment principles?
Spirituality and other investing principles
Shariah is the Muslim or Islamic law which regulates many aspects of a Muslim’s life including the type of investments allowed. Interest is considered usury. Bonds are prohibited. Non-Shariah-compliant companies include casinos, alcohol, and tobacco companies. Behavioural finance also talks about virtuous investing, how to save for tomorrow, how to overcome biases and overcome risk aversion, etc.
There is a lot of focus on ethics and governance. But Indian spirituality and its influence on investing is a lot different. This should be no shock, as both investing and spirituality are about psychology or somewhere about beating the mind, considered a prelude to beating the market. And, because gold has been historically associated with wisdom, value and trust, it’s a very strong psychological anchor. Hence, spiritual thought should explain the respective divergence in investing behaviour when it comes to gold.
Spirituality, holding period and risk transfer
The Gita does not talk about renouncing one’s economic role to find spirituality. One could remain an investor but still be spiritual, an odd balance harder to achieve. You can create wealth but still be detached. The family tradition of passing over the ancestral gold from one generation to another is the way material wealth moves spiritually over multiple generations of holdings period.
When such a long holding period gets associated with an asset class, it’s bound to alter its risk profile. It’s this generational risk transfer which changes everything. If 20 per cent of the world is always a buyer of gold at any dip, it’s no more a free market or a market that can be really understood. And, if this 20 percent of the market could not change a more than 1,000-year old consumption habit, you can’t just quantify the spiritual influence.
Sleeping gold and macroeconomic debate
Maybe it’s India why we fail to understand gold as an inflation or deflation or uncertainty hedge. It’s the only generational hedge. India buys it when it’s scared when it’s greedy, buys it as a store of value and risk management for all times, buys it anyway. It’s endlessly attractive.
Our short-term multi-year perspective for gold at $5,000 based on an inflationary premise stands firm. Now with gold almost at 50 percent retracement from historical highs nearing 1980 levels ($1,000) which is back at 33-year old boom prices, we really don’t know what the Indian investor is thinking. We will be surprised if gold falls another 10-15 percent and reaches near $1,000 levels. If it does, we can assume that the spiritual investor is trying out some micro-timing techniques in what remains a generational buy for him.