Ongoing Legacy of a Lustrous Metal: Gold, From Family Heirloom to Safety Valve

A lustrous metal that has witnessed history from ancient Bharat to modern-day Viksit Bharat, from the Indus Valley Civilisation to the artificial intelligence era, gold has served as a means of family inheritance, pride, and a reliable economic asset.

Illustration by The Geostrata

Its nature of scarcity makes it precious, and its ability to act as a safety valve for central banks worldwide makes it unique among other metals.

In the Indian economy, this lustrous metal is more than a currency; it is used as a symbol of patronage to the god Kubera (the god of wealth) and is worshipped by people. Also, in traditional lineage, the celebration of Diwali begins with Dhanteras, a festival dedicated to Lord Dhanvantari (the god of Ayurveda) and Goddess Lakshmi (the goddess of wealth), who are both said to have emerged from the ocean during the Samudra Manthan.

A key custom for marking this day is the purchase of gold and silver, and other precious metals.

Therefore, Indian families navigate to wealth through the safe passage of gold. With the end of the Bretton Woods system, the mechanism of gold pricing started in 1971.

Since then, gold prices have been allowed to float freely, which has led to volatile markets around the globe. From hedging for a debt crisis to pricing it in the stock market, gold is the all-time trendsetter.

Currently, the gold market is driven by the demand-supply curve; however, the market is also influenced by multistakeholder factors, including the Reserve Bank of India’s regulation on gold loan policies, government import duties, and consumer preferences.

From individuals to businesses in the Indian economy, all follow the safety haven asset theory: investing in gold in times of uncertainty, but consumers in the Indian market buy gold even in times of economic boom. Hence, we can surely believe that all that glitters is gold and true for the Indian economy.

In context to its financial edge, it impacts both macroeconomics (the national and global economy) and microeconomics (individual and business finances), and it is used as a monetary policy mechanism through adjustment of interest rates by the Reserve Bank of India in order to increase or decrease the opportunity cost of holding gold.

Henceforth, Gold's trustworthiness and dependability establish it as the supreme form of wealth, perfectly encapsulated by Toba Beta's words: "Never trust money more than gold."

With the recent Morgan Stanley estimates, we surely see the utility maximisation phase of Indian consumers with gold. As per the investment banking company, Indian households collectively hold about 34,600 tonnes of gold as of June 2025, making India the second-largest consumer of gold after China. Also, it stated that the country’s privately held gold is nearly 89% of its GDP(Gross Domestic Product).

On a contradictory note, demand and supply of gold in India are in dynamic equilibrium, where India’s domestic gold production is negligible at approximately 2% of total demand; we heavily rely on imports from countries such as Switzerland, the UAE, and South Africa, making us the second-largest importer of gold after China.

In the long run, this dependence on imports is distortionary to the BoP (Balance of Payment) status of India, and hence, it becomes a crucial policy dilemma for the government and the Reserve Bank of India to keep the interest rates and the import duty in control. 

Also, there are two major gold schemes by the Indian government: the Sovereign Gold Bond scheme (SGB) and the Gold Monetisation Scheme(GMS).

SGBs are government-backed bonds that offer a safe and convenient way to invest in gold without holding physical gold, providing a fixed interest rate along with capital appreciation.

The GMS is designed to mobilise idle gold from households and institutions by allowing them to deposit it in banks to earn interest. Now, let's dive into the reasons why gold is a legendary asset in India. Firstly, gold acts as a reserve against dollar-dominated currency and rupee depreciation.

Secondly, with the shift in financial knowledge of Indian households, gold acts as a better option than stocks, and also, with an increase in options of a more viable platform to invest in gold, it makes it even more accessible to the people.

Thirdly, gold provides a positive wealth effect to the household balance sheet, whether rural or urban. Fourthly, gold is considered generational wealth in the Indian traditions and also has symbolic meaning in heterogeneous India, and lastly, a reliable asset for diversifying multi-asset portfolios. 

Hence, we can surely say “gold is acting as a multitasker in the Indian market”. 

With reference to the overall impact on the Indian economy, gold acts as a financial stabiliser and ensures stability in uncertain times.

It provides macro and micro stability in the economy and, most importantly, it acts as a hedge against inflation. It also has the property of converting into easy and quick cash(high liquidity), thus making it a realistic pick.

Now, in the context of the Union Budget 2025, the government has kept the gold import duty at 6%, which is the lowest in more than ten years. Earlier, it was 15%, and the reduction helped increase the legal imports while reducing smuggling.

Thus, an improvement in import duty will help in the reduction of final retail pricing, leading to more consumption of gold by Indian consumers.

The GST Council has maintained the existing tax structure for gold to ensure continuity and stability in the bullion market. This was also confirmed during the 56th GST Council meeting in early September 2025. Hence, gold GST charges remain at 3% and an additional 5%  will be levied for making charges.

Therefore, through a multi-sectoral approach, the government uses its expansionary and contractionary policies in order to keep the gold market in check. Even on the global stage, gold is a reliable asset that can be traded anytime and is often viewed as a stand-in for traditional currency.

As Richard Russell suggested, gold will endure as true money long after modern currencies like the dollar, euro, yuan, and ringgit are forgotten.

From investment in physical gold to ETF(exchange-traded funds), gold has paved its way in multiple financial instruments in order to provide accessibility to diverse populations not only in India but also to the world.

Hence, this lustrous metal is beloved by the Indian economy and remains an all-time great financial instrument, and as per social media, gold is the new rizz(slang for charm) for upcoming generations.

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BY PALAK DHIMAN

COVERING PRIME MINISTER'S OFFICE

TEAM GEOSTRATA

info@thegeostrata.com