Indians buy gold when prices go down. Interestingly we also buy gold when prices go up because we think they would go up further. Our penchant for gold has led gold imports to spiral upwards. As a result, the government and the Reserve Bank of India (RBI) have been trying to curb the import of gold. They have thought about raising import duties on gold but beyond a certain point such an increase would only lead to an increase in smuggling. The two in tandem are also thinking of other steps to try and curb the demand for gold. But essentially they appear to be fighting a losing battle. For the government is not addressing the main reason as to why we buy gold.

An article in Firstpost has tried to figure out the reasons behind our penchant for gold. On the investment side we buy gold as it acts as a hedge against inflation. Given that the government has not done much to bring inflation under control, it is no wonder that gold has not lost its shine. Moreover, there is still a firm belief that the real assets of gold and real estate provide better returns as compared to the financial assets. Gold is also a preferred avenue for black money investments, something the government has not bothered to think about as of now. And last but not the least it is a part of our culture to buy gold. Unless the government addresses these issues, it is unlikely that our demand for gold will wane anytime