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Why do Indians buy gold?

India is one of the biggest markets for gold and gold loans. Reasons for this are spread across various social, economic and cultural dimensions. According to World Gold Council, India accounts for 10% of total world gold stock, of which rural India accounts for 65% of the total gold stock. For Indians, gold is not just a commodity, but an auspicious metal that they buy for various purposes on different occasions. There has always been a high demand for gold in India, irrespective of prices. During 2001- 2012, the annual demand for gold remained relatively stable at around 700 to 900 tonnes despite constant rise in prices during the last ten years[1]. 

In a recently concluded CMF research project, we attempt to understand the characteristics and behaviors of the various stakeholders involved in the gold loan market through a survey methodology. This post highlights one of the interesting findings from our preliminary analysis of the data.  In order to gauge people’s perception about gold, we asked respondents their motive behind buying gold. Following figure provides a snapshot of the various reasons people cite for buying gold.



As observed, 31% of respondents buy gold for use during emergency situations. This is because gold loans are easily available with minimal procedural requirements. Gold is also considered as one of the most liquid assets, since it can be easily converted back to cash and hence the resale value of gold is quite high compared to other types of asset. The second most common reason for buying gold is that gold has a very high traditional value in India. This includes buying gold during festivals, marriages, etc. There are various festivals in India during which buying gold is considered auspicious. This is true especially in the case of South India where people are gripped with what we can call a ‘gold mania’.
20% of respondents save in the form of gold. This is indeed a prudent decision as the value of gold has seen an upward trend over the last few years. Therefore, Indians prefer investing and saving in the form of gold, as gold is considered to be a safe asset. Lastly, a total of 19% of the sample size cites buying gold for marriage purposes. To give you further insight on this, following is an observation from one of our field visit while administering the gold questionnaire:
Surveyor: Do you often buy gold?
Respondent: No
Surveyor: Any specific reason, why you don’t show much interest in buying gold?

Respondent: I have two boy children and so I don’t care! If I had a girl child, I would start accumulating gold from the minute she was born. Guess I am lucky.
The above anecdote reflects society’s attitude towards importance of gold in marriages. Low income households face extreme societal pressure to buy gold in spite of their economic barriers.  
Whether Indians are emotionally attached to accumulating/buying gold is an interesting question to investigate. Historically, Indians have expressed great emotional attachment to their gold, which is one of the primary reasons for a flourishing Indian gold-loan market. However off late, the industry has witnessed increasing defaults on gold loans, due to decrease in prices of gold.  This reflects peoples’ changing perception about gold. Indians have proved to be smart investors and consider gold as a medium to save, invest, hedge against inflation and most importantly to safeguard their future.
Therefore, in spite of Finance Minister Chidambaram’s constant plea ‘to contain uncontrolled passion for gold’ the demand for gold in India is sky high.



[1] Report of the working group to study the issues related to gold imports and gold loans by NBFC’s, RBI 2013
Savings Psychology 6296911260679448441

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  1. Excellent article and insights. Is the recent, abrupt decline in gold price contributing to Indian's current "near 1991" economic situation?

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  2. Asian Countries are highly into investing in some form of Gold. Some of the countries find the yellow metal a great form of investment for business perspective, some take it as hedge on other investments, some think it is a treasure to pass on to generations, while many buy it for ornamental purpose.

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  3. Good article Misha. The purpose for buying gold has clearly come out through your survey. Despite hike in taxes and depreciating rupee, unless the consumers get suitable alternatives which meet their respective needs, people would not shift away from gold.
    Another major plus for gold being preferred is that it has multiple characteristics which very few other assets have - high liquidity: both in terms of ease of en-cashing it or availing a gold loan but also the conversion rate (very small deduction while re-selling); cultural value: bought on special occasions, for marriage etc.
    The fact that gold can be bought in as small a quantity as 0.5 gm (approx. Rs.1500) enabling consumer to invest whatever surplus they might have on hand and increasing prices only add to the attractive returns!!!

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