DO WE NEED GOLD?

We Indians have a natural flair for the yellow metal.Having  a tendency to associate things with divinity and purity we have always preferred gold in this term.This makes us the largest consumer of gold accounting more than 30% of the global gold market.And since the domestic gold production is minimal we meet the demand by importing it.most of us prefer in holding gold in physical form, when it comes to investment.However most of the gold bought by us are for consumption in terms of jewellery.

Though gold is viewed  as a hedge against economic crisis and economic and political turmoil makes it more lucrative.But in terms of national economy,it does not add much value.

        WHY DON'T WE NEED GOLD
As per the statistics of the gold council jewellery accounts for the 75% of the Indian  gold demand.and even China which is the second largest importer of gold lags behind 30%.and if we compare these demand level against the size of the major national economies,India's GDP is much lower than that of USA  or China.This high consumption rate is unproductive for Indian economy.
some facts which explain the problem;

• India has to pay for its gold imports using its foreign exchange reserves.this increases the current account deficit(CAD)
• the foreign exchange reserve which is to be used for importing materials for the production of goods. Higher consumption of industrial commodities supports industrial production. The goods produced by consuming such commodities can be exported and the revenues can be used to fund the current account deficit.but high gold imports and weak rupee have been the biggest stress points when it comes to narrowing the current account deficit.
• investment in jewellery does not add value to the economy.It seldom get traded for money,leading to miSallocation of capital.
• same amount invested in capital market could have raised production,making a huge difference in the productive capacity of the economy
• gold demand in India is independent of price. It is the economies of the US and Europe that play a major role in determining the price movements of gold. By importing gold for our consumption, we Indians are investing in the international markets and helping their economies.
•  for the transition of India from a developing market to developed market, it is important that the domestic investors stay invested in the capital markets.

Over the last few years, the Indian markets are supported majorly by the foreign inflows. Participation of Indian domestic investors becomes all the more important for the Indian markets to prosper. Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jewellery.