NEW DELHI // Even amid the most uncertain economic times, India's future has always been golden. The rupee may stumble, property values may decline and even the price of rice may skyrocket. But gold, common thinking goes, will persevere. Few countries rely on that mantra more than India, which has historically been the biggest gold consumer on earth - a country where millions still treat a few gold biscuits, locked away, as their sole bank account.
Until now. This year, India was eclipsed by China as the world's largest consumer of gold. A major reason for the downturn of demand is the fact that the precious metal, so synonymous with stability, has had its most turbulent year yet. Over the summer, the price for 10 grams of gold soared to an all-time high of close to 14,000 rupees (Dh 1,158), before dipping back to its present rate of a little less than 12,000 rupees. The ups and downs are creating havoc for jewellers, who never know how much bullion to stock, and for consumers who traditionally use gold as a hedge against uncertain economic times.
"When the gold rate is not stable, we don't get clients," said Anoop Anand, owner of Kavya Jewellery in the upmarket New Delhi neighbourhood of Greater Kailash. "Because the clients, they themselves, don't know if the price is going down or up. We also don't know whether to make an investment in gold or not." In India, virtually every social event - from weddings to naming days to Diwali - runs on gold. It is common for consumers to invest in a biscuit, and then pare down portions as occasions arise.
In addition, an estimated two-thirds of the precious metal is purchased by the rural poor, most of whom do not have bank accounts. After the annual monsoons, farmers pour most of their profits into gold - simply because they do not trust the rupee to hold its value. While demanding dowries from prospective brides has been illegal in the country since 1961, the practice persists in many quarters - and, again, gold is the currency of choice. If not used domestically, it is woven into bracelets and necklaces for global markets.
As a result, from 2000 to 2007, Indians bought one in every nine ounces of the world's gold, according to the World Gold Council. "What we have seen since our forefathers is that everyone invests in gold because it is cash," Mr Anand said. "It is the one thing one can use in a time of crisis. If you own a property today in Delhi can you sell it immediately in 10 minutes?" Besides, he said: "You can keep a small biscuit with you. It doesn't take so much space."
So far, buying gold, even by the least sophisticated of investors, has proven a savvy move. In 1925, you could buy 10 grams of gold for 18 rupees. In 1950, that same amount of gold was worth 99 rupees. Since then, the price has appreciated more than 50 times. So, too, of course, has the cost of living. But with gold's sudden spikes this year, the Indians' fervour for gold may finally be dimming.
While Indian gold hoarders - still clinging to an estimated 14,000 tonnes of the metal - may be enjoying the ride, observers predict that new investments will slacken appreciably. "Gold conditions will not be like last year," said Vivek Kala, president of the Jaipur Jewellers Association. "Demand will go down." When it comes to gold, few places gleam brighter on the map of India than Rajasthan. Since Mughal times starting in the early 16th century, the north-western region has been home to the country's precious metal and stone industry.
The annual Jewellers Association Show, which ended on July 31, drew more than 20,000 people to the state capital over a four-day span - a major jump from the previous year's attendance of 15,000. But even more notable was a decided shift among buyers from gold to other precious stones. "Taste is changing," Mr Kala said. "There are more diamonds, more coloured stones." Will uncertain prices finally wrest Indians from their historic gold lust?
Indeed, it is so intrinsically linked to Indian lifestyles, sales take a dip during the summer monsoons before surging upwards during the fall festival seasons. As recently as last year, Indians bought some 800 tonnes of gold. But, Mr Kala said: "I don't think it will touch that again in the next 10 years." There is, of course, another more pressing reason why demand for the precious metal is waning. The price of life's necessities - staples such as rice and vegetables - have also risen dramatically this year, echoing global shortages that still linger.
"Gold is the last thing which anyone will buy," Mr Anand said. "First you need your food, your clothing, a place to stay. Then if you have money, you invest in gold." ccotroneo@thenational.ae