Why is Gold important in India?

Introduction

Gold has a special place in every Indian household. For ages, people have considered this precious metal a symbol of value and have held it in high respect.

Besides being a part of the precious metals industry, the concept of gold is deeply woven into the fabric of Indian society. 

Have you ever wondered why gold is as precious as it is considered? 

In this blog, we’ll explore the origin of gold in India, its popularity, its role as both an instrument and an investment. 

Origin of Gold in India

The concept of gold in India can be jotted back to ancient times. Archeological evidence suggests that gold was mined and used in the Indian subcontinent. This was as early as the Bronze Age (circa 2500 BCE). 

The metal found its way into various aspects of Indian society, from religious ceremonies and royal insignia to intricate jewelry and coins. In Hinduism, gold holds divine significance and is associated with the goddess Lakshmi, the symbol of wealth and prosperity. 

It was in the Indus Valley Civilization, the first urban civilization of the world that the use of gold became more popular. In this era, people began using gold for crafting ornaments and religious artifacts.

Over the centuries, gold continued to play a significant role in the various dynasties. Various rules would adorn themselves with large quantities of gold. People saw gold jewelry as a symbol of wealth and power.

Why is Gold so popular?

The popularity of gold in India is deeply rooted in cultural and religious beliefs. In Indian mythology and ancient scriptures, gold is associated with various deities and is believed to have a divine significance. 

Over the centuries, this precious metal became an intrinsic part of Indian weddings and festivals. Gifting gold jewelry, on auspicious occasions became a way of expressing love and blessings. 

Gold also has a strong emotional value in Indian families. It is often passed down through generations as heirlooms, holding sentimental significance and connecting the present to the past. 

The fascination with gold extended beyond being used just as jewelry. Temples and shrines were adorned with gold, showcasing the metal’s connection to spirituality and the divine. The most famous example of this is the Golden Temple in Amritsar, Punjab, covered with a gold layer. 

Not just that, gold is also an important part of the economy. The Federal Reserve holds a substantial amount of gold reserves as part of its monetary policy and to support the stability of the economy.

Common Reasons Why Indians Love Gold

Liquidity and Security

One of the key reasons why Indians love gold is its liquidity and security. In times of financial emergencies or economic instability, gold can be easily converted into cash, providing a reliable safety net for families.

Unlike other investments that might take time to sell or may have market fluctuations, gold’s value remains relatively stable over time, making it a trusted asset for preserving wealth and protecting against inflation.

Symbol of Status

In India, is linked with wealth and prosperity. Owning it is considered a status symbol. The amount of gold a family possesses often reflects their social standing and financial success. 

During weddings and special occasions, the bride is adorned with gold jewelry as a symbol of her family’s affluence.

Sound Investment

Gold has consistently increased in value. This makes it a safe investment choice.

Gold is a hedge against economic uncertainty and currency fluctuations. It is a tangible asset that can be physically possessed, providing a sense of security in uncertain financial times. 

Gift of Preciousness

Gold is not only cherished for its monetary value but also for its emotional significance. People across cultures and generations perceive gold as a precious and worthy gift item. It is often exchanged during weddings, festivals, and other special occasions.

Religious Significance

Gold holds significant religious importance. According to Hindu mythology, gold represents Goddess Lakshmi.  Gold is often used in religious ceremonies and offerings to seek divine blessings and good fortune.

This is why it is also considered highly auspicious. Festivals like Dhanteras and Akshaya Tritiya witness a lot of people buying gold. You surely must have seen ads about hallmarked gold jewellery during these festive occasions.

Beautiful Ornamentation

Gold ornaments have been adorning women of all ages throughout history. From traditional wedding rings to contemporary designs, gold remains an eternal fashion statement.

From traditional and detailed designs to modern styles, people consider gold jewelry a work of art. Women of all ages wear gold ornaments to show beauty, and grace, and uphold tradition.

Value as an Heirloom

Gold jewelry serves as cherished heirlooms. One generation passes them down to another, symbolizing a sense of continuity.

It represents continuity, tradition, and the preservation of family values. The sentimental attachment to family gold makes it highly treasured and cherished among Indian households.

Why Gold is Not Just an Instrument

In modern times, gold has evolved beyond its traditional use as jewelry and currency. It has now also become a sought-after investment asset. It plays a crucial role in the country’s foreign exchange reserves. In fact, even the World Bank holds a significant portion of its assets in gold reserves. It helps maintain stability and support global financial initiatives.

Historically, during economic uncertainties or times of inflation, people have regarded gold as a safe-haven asset.

People often invest in gold bars as well. The gold bars work as an investment and are also a nice way to diversify your portfolio. 

Let’s look at points to better understand why gold is a precious investment.

Why Gold is a Precious Investment

Safe-Haven Asset

Throughout history, gold has proven to be a reliable safe-haven asset during times of economic uncertainty and geopolitical turmoil. 

When traditional markets experience volatility or inflation looms, investors often turn to gold as a store of value.

Gold doesn’t lose its value due to inflation and tends to maintain its worth. This makes it a hedge against economic downturns. 

Diversification Benefits

Gold’s low correlation with other financial assets, such as stocks and bonds, makes it an effective diversification tool. It is one of the alternative investment options to diversify your portfolio. You can also talk to financial expert at Vittae, to check your investments and help diversify your portfolio. 

Including gold in an investment portfolio can help reduce overall risk. This is because it tends to move differently from traditional investments. 

When equities struggle, gold may rise in value, providing a cushion for investors against losses in other asset classes.

Inflation Hedge

One of the primary reasons investors turn to gold is its ability to preserve purchasing power over the long term.

In times of inflation, the value of fiat currency erodes, but gold typically retains its worth. As a result, holding gold can help protect against the eroding effects of inflation and safeguard wealth.

Tangible Asset

Unlike many other investments, such as stocks and bonds, gold is a tangible asset.

Investors can physically possess the metal in the form of coins, providing a sense of security and ownership. This tangibility adds a layer of comfort, especially during times of financial uncertainty.

Gold Loan

Though not as popular as regular loans, gold loans are helpful in times of financial need. All the gold purchases come in handy for a loan. They provide quick access to funds without the need for extensive documentation.

A gold loan is also flexible. It allows borrowers to repay the loan and retrieve their gold assets once the loan is fully repaid.

Gold as an Investment

Gold isn’t just a precious metal bought on festivals like Akshaya Tritiya, it is also a strong investment. The Indian government and financial institutions have recognized the importance of gold as an investment tool. They have introduced various schemes and products to encourage the public to invest in metal. 

The government increased the import duty on gold to curb the rising demand and stabilize the trade deficit.

Some of these include Gold ETFs (Exchange-Traded Funds), Sovereign Gold Bonds, and Gold Monetization Schemes. 

Gold ETFs (Exchange-Traded Funds)

Gold ETFs offer investors a convenient and cost-effective way to gain exposure to the price movements of gold without physically owning the metal. 

These investment vehicles are traded on stock exchanges, like stocks, making them easily accessible to a wide range of investors. Here’s how Gold ETFs work:

Each Gold ETF share represents a specific amount of gold, typically 1/10th of an ounce.

The ETF provider holds the physical gold in a secured vault.

Investors can buy and sell ETF shares throughout the trading day, providing liquidity and flexibility.

Advantages of Gold ETFs

• Lower expenses compared to purchasing physical gold.
• No need for storage or security arrangements.
• Easy to buy and sell, offering liquidity.

Sovereign Gold Bonds

Sovereign Gold Bonds (SGBs) are government-issued securities denominated in grams of gold. 

These bonds aim to reduce the demand for physical gold and shift a part of domestic savings into financial savings. SGBs offer the following features:

Fixed Tenure

SGBs have a tenure of 8 years, with an exit option after the fifth year.

Periodic Interest

Investors receive fixed interest semi-annually at a rate specified by the government.

Capital Gains Tax Exemption

If held till maturity, the capital gains tax on SGBs is exempted.

Tradable

SGBs can be traded on stock exchanges if required liquidity before maturity.

Advantages of Sovereign Gold Bonds

• No risk of theft or storage costs as they are held in dematerialized form.
• Fixed-interest payments provide additional income on top of any capital appreciation.
• Capital gains tax exemption if held until maturity.

Conclusion

In conclusion, gold’s significance in India goes far beyond its material worth. It is an integral part of the country’s culture, traditions, and social fabric.

The emotional attachment and cultural symbolism associated with gold make it an inseparable element of Indian ceremonies, celebrations, and religious practices. 

Furthermore, its role as a safe-haven investment avenue has solidified its importance. 

While the market value of gold will continue to fluctuate, its historical importance and timeless allure in India are unlikely to fade away. 

As Indians continue to cherish their heritage and embrace the future, gold will remain a symbol of the nation’s prosperity, tradition, and unity.

Whether as a cherished heirloom, an exquisite piece of jewelry, or a wise investment choice, gold will forever be a precious asset for the people of India.