Historical factors are important in India but several of gold’s attributes are particularly valued.
Safety: While the value of currencies and other asset classes can drop and disappear in matter of seconds and minutes, gold is assumed to have a high intrinsic value due to its precious metal status.
Rarity: In tandem with its preciousness, gold is relatively rare and hence supply constraints add to its allure.
Hedge: India has been subject to runs of high inflation in recent times and hence gold’s protection against inflation has come to the fore. So too its safe haven status during the economic crises of recent years.
Central banks: While central bank holdings of gold have fluctuated, those holdings have long provided base line demand for the shining yellow.
Financial planning: In Indian savings portfolios, gold always has a place to a greater extent than other societies.
Mythology: Gold has been an integral part of the Indian wardrobe in mythical times and descriptions of golden crowns, arm bands and armours abound in history and art.
In our literary history the narratives talk of gold as part of the wardrobe of the Gods and famous Kings and Queens. With this deep history, during major festivals Indians buy gold as a way of seeking blessings by replicating what the Gods did. The superstition has however often paid off, as the shining yellow has helped many in tougher times.
Principles of finance: Regular savings and cost averaging involve buying an asset at regular intervals over a period of time. This ensures the total cost of acquisition is better insulated against peaks and troughs and appreciation has a larger effect on the total holdings of the asset.
Gold buying at regular intervals, for example at festivals, has had the happy benefit of replicating an ‘averaging in’ investment strategy.