Economics For Everyone: Gold And The World - Part III

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In Part 1, we discussed the Significance of Gold since Ancient Times, Gold and the Expansion of Global Trade, Gold and the Development of Banking, and the Gold Standard

In Part 2, we will discuss the role of Gold in the present time, such as the Geopolitics of Gold, Gold Price Trends Over the Last 50 Years (1975–2025), Gold Performance Across Economic Conditions, Correlation Between Gold and the Stock Market, Global Gold Companies, the world's largest gold producers, Governments and Gold, Gold price

In Part 3, the Concluding part, we discuss India and Gold, the special status of Gold in the Indian Economy, people's day-to-day life, impact on its culture and heritage, Gold consumption, reserves, pricing, and some of the Gold companies

India and Gold

India's relationship with gold is special. While many countries view gold primarily as a financial asset or reserve held by central banks, Indians have historically regarded gold as wealth, security, social status, religious devotion, and family inheritance all at once. This deep cultural and economic connection has made India one of the world's largest consumers of gold for centuries. Historical records indicate that gold was used in the Indian subcontinent as early as the Indus Valley Civilization (2600–1900 BCE). Archaeological discoveries have revealed gold ornaments, beads, and jewelry, suggesting that gold already held significant social and economic value. Unlike many societies where gold was concentrated among rulers and elites, gold gradually became embedded in the daily lives of ordinary people. Gold served not only as money but also as a symbol of economic strength and political authority. As centuries passed, gold became deeply intertwined with Indian culture and religion. Hindu traditions associated gold with prosperity, purity, and divine blessings. Goddesses such as Lakshmi, the deity of wealth and fortune, are often depicted adorned with gold ornaments. This spiritual connection elevated gold beyond a mere commodity and transformed it into a sacred asset.

Marriage customs further strengthened India's demand for gold. In many communities, gold jewelry became an essential part of wedding ceremonies. Families gifted gold to daughters as a form of financial security and inheritance. Unlike land or other assets that might be difficult to divide, gold could be easily transferred across generations. This practice created a unique economic phenomenon. While investors in many countries accumulated stocks, bonds, or financial instruments, Indian households accumulated physical gold. The metal became a trusted store of value in a society where access to formal banking was historically limited.

After independence in 1947, India faced foreign exchange shortages and limited industrial development. To conserve foreign currency, the government introduced strict controls on gold imports through the Gold Control Act of 1962. Citizens were restricted from holding gold bars and coins, and gold imports became heavily regulated. However, these measures failed to reduce demand. Instead, they contributed to the growth of gold smuggling networks. The persistence of demand demonstrated the extraordinary attachment Indian households had developed toward gold. Cultural traditions proved stronger than regulatory restrictions.

Economic liberalization in 1991 transformed the gold market. Import restrictions were gradually relaxed, allowing legal imports to meet consumer demand. As incomes increased and the middle class expanded, gold purchases rose significantly. By the early twenty-first century, India had emerged as one of the world's largest gold-consuming nations. Annual demand frequently ranged between 700 and 1,000 tonnes, accounting for a substantial share of global consumption. Jewellery represented the largest component of this demand, followed by investment in coins and bars.

Cultural and religious traditions continue to drive demand. Festivals such as Dhanteras and Akshaya Tritiya are considered auspicious occasions for purchasing gold. Millions of families buy gold during these celebrations regardless of short-term price fluctuations. The scale of India's private gold ownership is remarkable. Estimates suggest that Indian households collectively possess more than 25,000 tonnes of gold, making them among the largest holders of privately owned gold in the world. This quantity exceeds the official gold reserves of most central banks combined.

Recognizing the economic significance of these holdings, policymakers have introduced initiatives such as Gold Monetization Schemes and Sovereign Gold Bonds to channel idle gold into productive financial assets. These programs aim to reduce dependence on imports while encouraging households to earn returns on their gold holdings. At the national level, the Reserve Bank of India has also increased official gold reserves in recent years. Like many central banks, the RBI views gold as a strategic reserve asset that provides diversification and protection against global financial uncertainty.

Today, India's appetite for gold remains as strong as ever. Despite the growth of digital payments, stock markets, mutual funds, and modern financial instruments, gold continues to occupy a unique position in Indian society. It is simultaneously an investment, a cultural symbol, a form of savings, a source of security, and an expression of tradition.

The story of India's gold consumption is therefore more than an economic narrative. It is a story of civilization, culture, family values, and financial resilience. Across generations, gold has connected ancient trade routes with modern financial markets, linking the prosperity of the past with the aspirations of the future. Few nations have embraced gold as completely as India. Its enduring appetite for the precious metal reflects not only economic rationality but also a cultural legacy that has survived for thousands of years.

The retail price is determined by jewellers and bullion dealers using a combination of:

·    International gold price (usually the LBMA benchmark)

·    USD to INR exchange rate

·    Import duty

·    Agriculture Infrastructure and Development Cess (AIDC)

·    GST (3% on gold)

·    Transportation and insurance costs

·    Local demand and supply

· Jeweller’s making charges and margins.

Organizations such as the India Bullion and Jewellers Association (IBJA) publish benchmark domestic gold rates that are widely used by the bullion and jewellery industry, although individual jewellers may quote slightly different prices.

Most of the gold business-related companies in India are in the area of Retailing and lending, which indicates the ever-increasing household demand for Gold.

Table 1. Indian Gold Companies (Sample)

 The global gold market is worth approximately US$350-400 billion annually, with total demand of around 5,000 tonnes each year. India occupies a distinctive position in this market. While the Reserve Bank of India holds about 880 tonnes of official gold reserves, Indian households are estimated to own around 25,000 tonnes of gold, the largest stock of privately held gold in the world.

Central-bank purchases, investment demand, and India's deep-rooted cultural affinity for gold continue to influence global gold prices and demand patterns. As one of the world's largest consumers of gold for jewellery and investment, India remains a pivotal player in the international gold economy.