WASHINGTON, October, 5, 2011—Gold has been the expression of love, sanctity, royalty and durability since times immemorial. India’s love affair with the yellow metal dates back over 4000 years when people of the Indus Valley Civilization first made gold into jewelry.
Nowhere is the Gold obsession more culturally entrenched than in India. Gold is deeply ingrained into the cultural traditions of the country; there is an association with the splendor and pomp of the Hindu gods, goddesses and kings in epics and mythological stories.
This mythical value gives even more sheen to the coveted metal. Its generous possession symbolizes power, prestige and wealth of its owner. In my own history, I remember my mother buying gold jewelry. Every month, it surprised me to watch my mother pay small amounts of money to the local jeweler, only to end up with a tiny piece of gold in the form of an earring or neckpiece. The same is true for most of the Indian households, who would save religiously to buy gold.
The biggest consumer of gold in the world (interestingly one of the few areas where China ranks behind India) India consumes a staggering 746 tons in 2010. Over 50% of this gold is bought in the form of jewelry to grace occasions such as the big fat Indian wedding. The remaining amount is brought on auspicious days like Akshaya Tritiya for which gold is a symbol of good luck and prosperity.
The quantity of gold jewelry Indians purchase on this day (e.g. 49 tons in 2008) so exceeds the amount bought on any other day of the year throughout the world that it often nudges gold prices higher.
Research shows that by 2020, cumulative annual demand for gold in India will increase to excess of 1200 tons or approximately Rs. 2.5 trillion, at current price levels. India’s private stock of gold is difficult to determine, but is estimated at more than 18,000 tons for Indian households, which is the largest stock of private gold in the world, about 40 times more than what is held by the country’s Central Bank.
Kerela, the epicenter of gold consumption, accounts for 3% of the country’s population but 7 to 8% of its gold market. Some of the biggest gold retailers of Asia come from Kerala. If you visit the state’s capital, you can easily witness the gold obsession. There are large gold showrooms on either side of the street and billboards with pictures of women gilded in gold jewelry are prevalent throughout the state. In Kerela, gold jewelry ranks second only to food in terms of most products sold in the retail market. As Kerala’s wealth grows, thanks to the large number of workers expatriated to the Persian Gulf, its attachment to gold also continues to rise.
What is it that drives this special affection for gold in India?
Indian brains are culturally wired to believe that gold is the most reliable asset that best protects their wealth and freedom. “Millions of people in India have capitalized their businesses or farms, or secured their basic necessities after severe business reversals, by pledging their gold jewelry. Were it not for gold, the average Indian’s lot through history could’ve been a lot worse”.
This was largely because of the unrelenting struggle of the average Indian, first under the colonial rule and then under socialist India.
In ancient India, gold coins were used as a preferred medium of exchange and as a store of wealth. The coins could be easily hidden during times of strife, enabling ordinary citizens to avoid losing their wealth. Even after independence, government policies did not create a an environment for the common man to save enough; in times when the Marginal tax rates hit a scarcely believable 95 percent and the rupee’s value declined steadily, gold served as a hedge against depreciation of Rupee.
In the absence of a government-backed social security net, Indian consumers considered it a best bet to hedge by holding a portion of their savings in gold. Even when inflation ate away their accumulated savings, gold retained its value. Moreover, majority of rural India completely bypassed the banking system as neither it was easily accessible to them and nor did they understand it and preferred to hold their savings in gold. When in need of money they pledged their gold with a local money lender in return for cash.
Gold loans are the easiest loans to avail in the country, even from public sector banks. Many who began business as gold pawnbrokers in their villages have been incorporated and come to dominate the national gold loan market.
A recent discovery of an Indian Temple’s treasure trove bears testimony to even ancient India’s attachment to the yellow metal. The Indian Government has unearthed a treasure of an estimated US$ 22 billion in the 16th-century Anantha Padmanabhaswamy temple in Kerala, making it the world’s richest temple, leaving behind its erstwhile competitors like Tirupati and Vatican.
The five vaults of the temple were opened after 130 years. The golden inventory comprised of gold necklaces over three meters long and weighing over 2.5 kilograms, thousands of pieces of antique jewelry, idols, and artifacts studded with diamonds and emeralds. Such a humungous trove may have the likes of Kings and Queens rolling their eyes in wonder.
As an aside, the gold in the temple would be more than enough to fund India’s entire education budget for the next two-and-a-half years.
Indian temples have always been seats of enormous wealth donated as offerings from its millions of devotees, which explains why raiders like Mahmud of Ghazni (971-1030 AD) repeatedly looted the temples for their treasures.
Economists argue that the Indian gold bug has some pernicious effects. If the money used to buy gold was invested in banks or stocks rather than being locked up in non-productive assets, it would boost India’s GDP significantly.
What needs to be noted, however, is that Indian’s usually invest in gold jewelry and end up attaching emotional value to it which makes them hold on to it rather than trade their wealth continuously. The Indian population needs to take another look at the current unproductive gold holdings with a view to making them tradable and productive. It’s time for the gold guzzling nation to think of ways to use its golden assets more productively.
These are times when even Central Banks around the world have a huge appetite for gold. China buys almost all the gold mined domestically, Saudi Arabia has doubled its gold reserves, and even smaller countries like Malaysia and Thailand are adding to their gold reserves.
The Government of India was the biggest single-transaction buyer of gold, purchasing 200 tons from the IMF in recent times.
With this divine economic power bestowed on the yellow metal no wonder why we never see the loss of glitter in the jewel merchants’ face.
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