As any Indian is well-aware, gold in India holds a special place in the hearts and minds of the population. Gold is the bedrock of most Indian families’ savings; few Indian brides will enter a marriage without bringing as much gold jewelry as possible to the marital union, in order to secure their financial future. The privately-held gold reserves of India are also a focal point for legions of economists, government officials, and politicians, who periodically attempt to institute new regulations that curb the private Indian citizen’s appetite for purchasing gold, in the hope that such restrictions will boost economic productivity and curb inflation.
Why is Gold so Important to Indians As Compared To Other Countries?
The Indian interest in gold as a hedge against economic, political, and social chaos is historic. What often surprises me is that India is just about the only country that has such a nation-wide traditional reverence and appreciation for acquiring gold. After all, it’s not as if the rest of the ancient world was immune from war, slaughter, natural catastrophes, or economic disaster. In fact, even though gold has specific historic significance in India, it was not uncommon in the rest of the ancient world. Gold has been discovered just about everywhere in the world – even in the ocean.[1] Some academics believe that one of the main reasons gold has been able to retain its importance in Indian society is because the quantities of gold discovered in the world typically vary, allowing this commodity to retain much of its value through the centuries.[2]
Another historic value-enhancing characteristic of gold has been the ease of excavating it, as well as the ease of molding it into shapes. In early times, gold was gathered from river beds or hill deposits through use of a mere pick and a pan, although modern gold mining methods were adopted in India toward the end of the nineteenth century.[3] Once uncovered, gold required little processing prior to being put to immediate use as jewelry or bullion.[4] Yet, these facts are true for gold worldwide. Why, then, has gold remained such a mainstay of the private Indian’s savings account, while the citizens of other ancient cultures have comparatively little interest in using gold as a hedge against financial uncertainty?
Other than religious and financial considerations, one explanation for India’s long-standing interest in gold might be because it is not easily found indigenously in India. In fact, discoveries of gold sources in India are relatively rare, although very small amounts of gold have been found in the river sands of many states in India.[5] Historically, some gold sources were available in India – ancient gold mines existed in Mysore, Hyderabad, Chota Nagpur, and Dharwar, as well as other places in South India.[6] However, it is believed that the amounts of gold produced from these ancient Indian mines were not sufficient to satisfy the demand of an entire subcontinent of people, not to mention the later colonial interest of the British East India Company.
Some researchers have suggested that Indian consumption of gold increased greatly in the 1800s, due to several world-wide factors. In the middle of the 19th century, world-wide gold production increased greatly due to the discovery of gold in California in 1848 and in Australia in 1851.[7] Silver mining also increased greatly within this time period, due to the discovery of silver mines in Mexico and Peru.[8] During the 1800s, India’s population nearly doubled, causing a huge upsurge in the demand for gold jewelry. Rural populations in India began to acquire significant amounts of silver jewelry.[9] As a result, a large amount of newly mined international gold and silver was shipped to India, where it was made into jewelry and also used in the production of silver coins.[10] This increase in gold consumption in India was noticed by E.B. Maclagan, a European visitor to India in the late 1800s, who stated that “of late years, the use of precious metals has largely increased . . . it’s a better class of work (and) better forms of ornaments; more ornaments are worn now than a generation ago.”[11]
Gold Production and Consumption in India Today
Most of the gold that originates in India today is found in Karnataka, and until 2001, was mined industrially in the Kolar gold fields.[12] Gold is also mined in the Hutti Gold Field in Hyderabad, and the Anantapur Field in Tamil Nadu.[13] Even more so than in ancient times, the amount of gold mined in India today is relatively small compared to the demand of the Indian public.[14] India’s annual gold yield, rough estimated at less than 100,000 ounces in the late 1900s, placed India as the 17th in the world’s gold-producing nations.[15] However, recent estimates suggest that India produced only about 50,000 ounces of gold in 2014.[16] This small production of gold makes it clear that the majority of gold in India is imported from abroad. I suspect that, in addition to the social, religious, and spiritual meaning associated with gold, the scarcity of it from natural sources within India has probably added to its appeal throughout the ages.
As the gold mined locally in India is limited, much of the gold imported into India comes in via South Africa and the Middle East.[17] After the gold reaches India, it is managed by a network of goldsmiths, retailers, dealers, middle-men, and pawn-brokers,[18] and ultimately distributed to the Indian public primarily in the form of jewelry. Unlike other nations, most gold in India is held privately, and is widely distributed even into the villages of India.[19] As of the late 1900s, India is believed to have had approximately 7,000 tonnes of gold in private hands, and 3,000 tonnes of gold in the Reserve Bank of India.[20] In contrast, most gold reserves in other countries are held primarily by individual nations’ central banks, and not by private citizens. Raw gold in India is also supplied by the Indian public, in the form of recycled gold ornaments.[21]
Surprisingly, even though the Indian public typically prefers 22 carat gold jewelry, the process for determining the caratage of gold is inexact in India.[22] Some jewelers estimate the caratage of gold by rubbing it against a touchstone, and then analyzing the color of the smear left behind.[23] Another method is to use tezab shora, a nitric acid used to refine gold, by analyzing the reaction of the gold to the acid.[24] Ultimately, however, goldsmiths will depend on their experience and instinct rather than any scientific method or certification.[25] Impressively, the Indian public seems to accept their pronouncements as truthful; I suspect that many Indian family elders are just as expert in assessing the value of gold used as are the merchants they buy their jewelry from.
As the interest in gold is high among Indian families, gold as a commodity plays a prominent part in India’s financial markets. The Indian daily newspapers typically quote gold prices per 10 grams and silver prices per kilogram.[26] The sensitivity of Indian precious metal pricing is affected by numerous factors, including the exchange rate of the U.S. dollar, the manipulation of gold and silver stocks on the world market, the annual approach of the yearly marriage season, and anxiety over foreign or domestic concerns.[27] Gold prices, in general, are not fixed by the Indian government.[28]
Interestingly, although recent downturns in the Indian stock market and the value of the rupee have also been followed by a drop in the price of gold, Indian views on the value of gold as a family investment have not changed. In fact, the purchase of gold as an investment and as a hedge against financial insecurity has become popular in surrounding nations such as China. In 2013, market analysts noticed that Chinese women were buying gold heavily, almost more so than Indian women, leading some to predict that China would permanently surpass India in gold purchases.[29] I personally do not think this is likely, as Indian interest in gold is historic and long-standing.
Gold Control Order of 1963
As most of the gold in India is held privately, various economic ministers and ruling prime ministers have expressed concern over the effect such possession has on the Indian financial markets. Many government officials hoped to use privately owned Indian gold to improve the economic development of the nation, and to build up the gold reserve to protect against worldwide economic fluctuations.[30] Some have even attempted to force private Indian gold owners to give up their stash. In the early 1960s, for example, the Indian finance minister Morarji Desai attempted to free up the privately owned gold in India.
In 1963, the Indian government introduced the Gold Control Order, mandating that gold used for jewelry be no more than 14 carats.[31] Unfortunately, this Order ran into immediate public resistance. Tradesmen and jewelers in the gold industry staged mass demonstrations for over 3 years, and the public refused to buy jewelry with only 14 karat gold, causing gold jewelry businesses to suffer with reduced sales.[32] The Indian government attempted to ease the public’s anger later in 1963, by permitting jewelers to make jewelry worth more than 14 karats through use of recycled 22 karat gold ornaments.[33] The public was still not happy, and frequently bypassed the dictates of the Gold Control Order through smugglers and black market purchases. Finally, in 1966, Prime Minister Indira Gandhi removed the order’s restriction on use of 22 carat gold jewelry.[34] The Order still prohibits ownership of gold in the form of bars and ingots, but this restriction does not seem to be troubling to the Indian public, which still buys most of its gold in the form of jewelry.[35] The Order still places a limit on the number of gold ornaments that an Indian can own, but judging by the public’s purchasing behavior, I am not convinced that anyone is paying attention to this limit.[36] Ultimately, no regulation has been able to stop Indians from purchasing large amounts of gold for private use.
[1] A Golden Treasury: Jewellery From the Indian Subcontinent; by Susan Stronge, Nima Smith, and J.C. Harle; Rizzoli International Publications Inc. 1988 (in association with the Victoria and Albert Museum and Grantha Corporation, 11
[2] Stronge 11
[3] Traditional Jewelry of India, by Oppi Untracht; first published in UK in 1997 by Thames and Hudson Ltd.; published in 1997 by Harry N. Abrams, Inc., NYC; first published in paperback in USA in 2008 by Thames and Hudson Inc.; copyright 1997 Oppi Untracht, 279
[4] Stronge, 11
[5] Untracht, 279
[6] Untracht, 279
[7] Untracht, 278
[8] Untracht, 278
[9] Untracht, 278
[10] Untracht, 278
[11] Untracht, 278; E.B. Maclagan’s Monograph on the Gold and Silver Works of the Punjab (1890).
[12] Stronge, 11; The Kolar Gold Fields were closed in 2001 by the Indian government. Attempts are underway to re-open these mines with foreign investment and partnership. http://www.bbc.com/news/business-16145737
[13] Untracht, 279
[14] Untracht, 279
[15] Untracht, 279
[16] http://profit.ndtv.com/news/industries/article-indias-gold-production-drops-8-in-2014-15-758532; 1 tonne = 35,274 ounces.
[17] Stronge, 11 and 115
[18] Stronge, 115
[19] Stronge, 11
[20] Stronge, 115
[21] Stronge, 115
[22] Stronge, 117
[23] Stronge, 117
[24] Stronge, 117; Hand-book of the Economic Products of the Punjab by Baden Henry Baden-Powell, Thomason Civil Engineering College Press, Lahore, 1868 page 61.
[25] Stronge, 118.
[26] Untracht, 281.
[27] Untracht, 281
[28] Untracht, 278.
[29] http://www.bloomberg.com/bw/articles/2013-11-27/china-poised-to-surpass-india-in-gold-purchases
[30] Untracht, 279
[31] Untracht, 279
[32] Untracht, 279
[33] Untracht, 279
[34] Untracht, 279
[35] Untracht, 279
[36] Untracht, 279
