Gold: The Quintessential Safe Haven Asset That Appeals To Cross Sections Of Society
· Free Press Journal
Prime Minister Narendra Modi recently asked citizens to stop purchasing gold for at least one year to conserve the country's foreign exchange reserves and protect the economy. He made the appeal as global geopolitical tensions and surging crude oil prices put heavy pressure on the Indian rupee and the national import bill, with gold imports being the second largest in the nation’s import basket, the first being crude oil. Gold prices in India experienced a massive, one-day surge on May 13, 2026, with futures spiking nearly 6% to 7% (approx. ₹9,000–₹10,000) to over ₹1,63,000 per 10 grams on the MCX, following the drastic but arguably justified increase in the import duty on gold and silver to 15% from a soft 6%.
The Prime Minister’s exhortation, coupled with the follow-up measure of the hike in import duty, has been resented by the jeweller lobby. That smuggling of the yellow metal will get a leg up is something that is going to give sleepless nights to the authorities, especially the coastguards. But then it is unlikely that the households will give up their fascination with the yellow metal, what with its safe haven character asserting itself from time to time. The year 2025 began with 24K gold at approximately ₹85,000/10g. But by the festive Dhanteras period in October and year-end, domestic prices surged, settling between ₹1,27,000 to ₹1,36,000/10g largely due to the Trump administration’s rocking of international trade through whimsical tariffs. Early 2026, in line with global peaks, Indian gold rates skyrocketed to an estimated ₹1,50,000 to ₹1,83,000/10g in January. Currently, localised 24K gold rates have stabilised from those extreme winter peaks, settling broadly between ₹1,45,000 and ₹1,58,000 per 10 grams, depending on regional making charges and local taxation.
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A major step against morbid fascination with gold has been the Gold Monetisation Scheme (GMS) that allows individuals and institutions to deposit their idle physical gold (jewellery, coins, or bars) into banks to earn regular interest in the range of 2 to 2.25% per annum and safety, with the minimum being 10 grams. Upon maturity after one to three years, depositors can redeem their assets in either the equivalent cash value or physical gold. But the catch lies in the Certified Collection and Purity Testing Centre (CPTC) melting the jewels into gold bars, which is an anathema to the housewives and households who account for close to 80% of the treasure and worship their mangalsutras. So much so, the GMS has been a spectacular failure ever since its introduction in 2015—the scheme has managed to collect only a pitiful 31.16 metric tonnes of gold, a negligible amount compared to the total gold in private hands, guesstimated to be 25,000 tonnes.
Weaning people away from gold requires shifting public trust from physical assets to productive, inflation-beating financial instruments. Success depends on offering robust alternatives, improving financial literacy, and building confidence in modern economic systems. People often buy gold as a hedge against inflation. To shift this behaviour, governments and financial institutions must offer accessible, secure alternatives that protect purchasing power, like inflation-indexed bonds that guarantee returns above the inflation rate, offering a direct, secure substitute for hoarding physical metal. Unfortunately, the government isn’t very enthusiastic about it, as it views it as lose-lose and win-win for the investors.
The Indian public is also inured to gold for another reason—gold loans. It is so popular that banks and Non-Banking Financial Institutions (NBFCs) fall over themselves for the clientele. Gold holds fascination not only for households but also for nation-states. Central banks set store by it, piling up the yellow metal as a safe haven asset that is for all reasons and seasons.
In 1944, the USA offered a gold exchange standard in terms of which any IMF member could exchange one ounce of gold for every tranche of $35. It was a cleverly diabolical scheme which took the world for a massive ride, with gullible nation-states falling hook, line, and sinker for it. It was abolished in 1973, as abruptly as it was introduced, simply through an executive order by the Nixon administration. The USA had gotten away for nearly three decades with sheer bluff and bluster—it did not have enough gold to exchange for dollars circulating round the world. But the point is, the USA cunningly foisted on the world its currency as the international reserve currency on the back of its supposed enormous gold treasure!
Is gold an illusory investment with its lustre kept burnished by its scarcity value—demand outstripping its supply? Its industrial use is only 15% of its total demand. Prime Minister Modi has made the appeal for not patronising gold for a year and backed it up with a stiff hike in its import duty, but one is not sure if the twin measures would bear fruits. To be sure, it is the idlest investment for households with no regular income potential unless invested in GMS, except when sold when it can give phenomenal capital gains.
Out on a limb, the government can ask the RBI to float schemes from time to time, offering people a price that is at a premium over the market price in a manner partially of companies buying back their own shares with tax amnesty thrown in for non-repeat income tax offenders. Simultaneously, gold loans by banks and NBFCs should be banned, as they can work at cross purposes with the putative RBI public offer to buy out.
S Murlidharan is a freelance columnist and writes on economics, business, legal and taxation issues.