Are Indians Really Treating Gold as an Investment?

Indians, especially women look forward to buying gold as an investment. By that they usually mean gold jewellery. It’s often quoted that Indian women hold ~10% of the World's gold in the form of their jewellery. There are schemes by jewellery stores for monthly instalments in gold to be redeemed at a later date for jewellery. Parents save up for decades and buy Jewellery for their daughters' weddings and so on.

So much so that a beleaguered Indian Government has introduced or facilitated the introduction of several schemes /instruments like Gold Bonds, Digital Gold, Gold ETFs etc. to reduce the demand for physical gold that’s putting pressure on our Exchange rate.

But these instruments haven’t really seen much uptick among women (sort of anecdotal but I don’t think I’m wrong on this one). Buying of jewellery continues unabated and gold maintains its position as a supposed avenue for investment.

I believe the reason why these Gold Instruments and government initiatives to wean Indians off of their jewellery buying has been unsuccessful thus far is because there is a fundamental difference in the way most Indians treat other investments when compared to their supposed investments in gold.

I ask the reader: What is the end goal of an investment?

Most of you would agree to the statement that

The end goal of an investment is to be able to profit from an expected (and hopefully significant) rise in the value of the investment in the future by selling it.

Other possible goals could be to buy an asset and then use that as collateral to get loans to further build a business.

Now ask the women in your life if they would be ready to sell their Jewellery (barring any heirloom or similarly sentimental pieces) at a later date for a significant increase in price (but not in exchange for another piece of jewellery) to buy other assets or spend the money? Or in another scenario, would they be willing to mortgage their jewellery (even if they have other collateral) to start a business?

Almost every woman would most likely refuse both options. Therein lies the conundrum. Gold which is expensive to buy, easy to sell and with a high chance of appreciation is not really bought as an investment. Calling it pure sentiment also does not justice to the cause.

Indians (particularly Hindus) consider Gold as a form of the Goddess Lakshmi and Bhagya (Prosperity). It is not something to be considered to be sold for profit later once bought by a household and is usually mortgaged only in times of great need for the household. It is essentially a form of what I call Cultural Insurance. For as long as an Indian Household has its gold jewellery, it’s a sign that things are alright (for the most part of course).

So irrespective of how liquid gold derivative instruments are (ETFs, Gold Bonds etc.), how tax friendly they are blah blah blah..., they definitely fall short in the eyes of Indian consumers primarily because

  1. Physical gold and especially jewellery has cultural and religious significance
  2. Most people do not wish to think of gold as any form (even though I think Gold Bonds being used as collateral is a good idea) of collateral since the connotations are extremely negative.

No wonder that the Government's efforts to reduce our buying of physical gold is falling short.

I will end the article by articulating one way (albeit indirect) which I think the Government can use to alter our "gold coated" habits

The Government, in collaboration with Jewellers and Banks can expand on the Government Guaranteed Bonds by applying the scheme directly to buy gold coins /ingots periodically (monthly, yearly etc.). The catch being that the buyer can use these ingots only at the end of 5,10 15 years etc. Subscribers could redeem these with certain Jewellers in exchange for jewellery of the same value (without incurring making charges etc.) This in addition to paying some interest (to the same extent as the Gold Bond) could see a portion of the population with young children that don’t really need the jewellery at the moment taking part in the scheme. But even this may not really see any large change in spending habits for the rest. But it could give the government some breathing space in the form of forex hedging.

Personally, I think it’s a good idea to buy gold coins periodically to build a corpus of gold (gold as a portion of a young person's Net Worth should ideally not be more than 10-15%) so that this can be used to tick all the boxed mentioned above (future jewellery, an alternate and liquid form of money that can be used when required and an asset that will most likely appreciate in a robust manner).


Sceptics can check for the above preferences with their own sample population. If they find more than 20-25% women agreeing to either one of the two options, then please do write to me at for this would be a fantastic counter point to assess.