Hold your Gold?

Hold your Gold?
Image credit: Sanrachna

This is a story about gold. The precious metal depending on who you ask is either a store of value, or a marker of changing economic gravity. However, it is also a lesson in behavioural modifications.

In 2011, The Economist commented on the love for gold amongst Indians. It was the year that 1,000 tonnes of gold was imported into India, the highest that year. There were many insights offered into this behaviour considering that till mid 1990's gold was ridiculously taxed, and could only be smuggled. In the heyday of the great socialist experiment that was the Indian economy say in 1982 India only imported 65 tonnes of the shiny stuff.

It served as a form of currency and collateral to borrow against. Gold loans anyone. Gold is the story of evolution of financial access, for in 1982 opening a bank account was an enterprise worth putting on your CV. The price inflation was higher than benchmark interest rates and government interests rates. The years between 2002 and 2011 when India was doing well in macro-terms the price of gold rose every year, along with property it became a go to asset class to store wealth and value without excessive red-tape. Think of it as an analog bitcoin without the hype.

The pressure of importing gold did create a problem for macro-economy of India. From the heyday of 2011 gold started losing its sheen as more and more people got onboarded onto banking courtesy of the Jan Dhan accounts, access to formal credit increased gold as a store of value started decreasing. The other big contributor to the decline of gold was the steady rise in the import of electronic equipment, and steady percolation of buy now pay later schemes. After the pandemic other things remained constant but change was observed in the spending, saving, and investing habits of the entire economy.

Gold started making a comeback as a desired vehicle of investment, and saving. The old adage of parking your investment in gold as a rainy day fund. In a volatile economy with a war raging on, gold has also moved beyond its physical class and is now finding Favour with the exchange-traded funds class in December 2022 hit a record value of US$ 2.5 billion.

There are many explorations on how gold is a negative yield investment and there has to be a basket approach to investment. The fact that we prefer low yield but safe investment over a wide array of financial instruments promising an assortment of riches tells us that the tale of Odyesseus and the Sirens and the pursuit of long term financial well being with short term hedonism needs more calibrated looking into.