3 Reasons for Gold Demand in India

India Gold Wedding

Throughout history, gold has been considered an indispensable and auspicious part of Indian customs and traditions. The poorest households will scrape together money to adorn the bride with ornamental gold jewelry. According to the World Gold Council, weddings constitute around 50% of annual gold demand. Celebrities that will flaunt a concerning large amount of flashy gold rings, necklaces, and accessories.

This is by no means a tradition of the past. Indians bought over 20 tonnes of gold during the spring festival of Akshaya Tritaya. Apart from culture and tradition, the popularity of gold in India can be attributed to a few other reasons:

Savior in a Crisis

If you ever resort to watching Indian soap operas, you will know the importance of gold in society.  Often a central plot point occurs when a devastated Indian female resorts to pawning off her gold. This is so that the money obtained can keep the household running. This is representative of the highly liquid nature of the asset in South Asian countries. It is a fool-proof investment opportunity since its value has shown a worldwide steady trend upwards. Fluctuations in the yellow metal are usually related to financial or geopolitical distress.

Indian Wedding Gold

Easy Way Out

As of 2018, the World Bank reported that nearly 80% of Indians have a bank account. Now even if they do have a bank account, a large section of the rural population treat banking procedures with suspicion and confusion, leading to many inactive accounts. This is without taking into account the ineffective Indian bureaucracy and taxes that further entangle the pitiful situation. Thus, the majority of the population turns to gold as a savings option. Not only does it guarantee a rise in value and financial security, but it is also a comfortable option associated with tradition and history.

Fighting Inflation

For a long time now, economists and the Indian government have been trying to steer households away from physical investments and towards financial assets. Investments in financial assets can generate greater opportunities for the economy, as your savings are another person’s investments. However, this is a tricky situation. As reported by the Reserve Bank of India, “..if nominal interest rates on some financial assets do not keep pace with inflation, households may reallocate their savings towards other assets, such as, physical assets or valuables such as gold (which is not part of household savings)”

The combination of a government that tries to encourage cheap borrowing and a steady inflation rate leads to a not-fun situation for savers. The nominal savings rate is often not enough to meet the rising prices, and thus, households turn to gold. Its value has steadily increased over time and will continue to do so. Moreover, the cultural connotations ensure that it will remain a steady fixture in Indian society.

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