Column : How to stop the gold rush
Gold has a very important place in Indian society and is consumed by even the poorer classes. It is held for the purpose of security as well as vanity. This point should be considered whenever we look at options for lowering demand for gold. These factors explain as to why India’s demand for gold kept increasing last year, even when the rupee had fallen by over 20%, which had pushed up the domestic price. Quite evidently, while we do look at ex-post factors that could have affected demand for gold like the underlying being a very good investment option, this could not be the driving force for such demand. Yes, there certainly is a class of people who buy gold for investment purpose, but they do not actually sell it when the price goes up--much like property, where individuals own multiple dwellings for creating assets that are rarely sold. If there is agreement on these factors, then some of the recommendations made by RBI can be examined.
RBI talks of gold deposits, accumulation and pension schemes. Will people really come forward and deposit their gold and take
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