Introduction

India shares a unique relationship with gold, one that is very complex and timeless. From Hindu mythology to various cultural traditions, gold is deeply embedded in the Indian psyche. It’s a symbol of purity, prosperity, good luck, status and wealth. Every Indian, rich or poor, living in city, town or village, is a potential first time buyer or , as in most cases, a repeat buyer. Gold purchases serve a two-fold purpose- that of an ornament and an investment. The emotional and sentimental attachment to gold further adds to the complexity as gold is passed on from one generation to the next. Right from the time a child is born to the time of marriage, gold finds a place in all the rituals and traditions. In addition to this, the religious significance of gold in India means festivals and temple offerings are other important triggers for high sales of gold.

Our aim is to study what triggers the Indian consumer to buy gold, the changing trends in purchase behavior, the impact of this on India’s financial stability and to recommend ways to monetize gold or suggest alternate instruments that can curb the investment demand for gold in the country.

We analyzed the existing literature on gold to systematically understand current understanding regarding the factors that act as triggers for the Indian gold consumer. We will then compare this with our primary research in an attempt to draw a clearer picture of the gold market in India and suggest ways to monetize it.

Section 2: Brief Review of Literature

Section 3: Gold: Demand, Supply and Impact on Financial Stability

Demand for Gold

The ‘Report of the Working Group to Study the Issues Related to Gold and Gold Loans NBFCs in India’, constituted by RBI, states that the demand for gold in India cannot be compared with that of the demand for gold in other parts of the world. The 1.3 plus billion population of India would continue to generate demand for gold, especially through imports. The demand is from both investors in gold and gold jewelry consumers. Due to various cultural, religious, economic and social reasons, the gold demand in India is autonomous. The benefit that it offers by way of long-run inflation hedge, high liquidity and also, the absence of substitutes with similar risk-return profile makes it an attractive asset to store. The convenience of cash based transactions and absence of documentation hassle (no paper trail, tax obligations etc.) further makes it a preferred channel for money laundering. Hence the committee concludes that attempting to curb the gold demand in India would a difficult and complex task.