Psychological valuation of gold in India

In India, gold is entwined emotionally, culturally and socially. As one of the largest consumers in the world, Indians consistently purchase gold (75% is in the form of jewellery) mainly during festivities. Such purchases are sometimes preceded by periods of deliberation and discussion while at other times, the purchases are unplanned. Due to a dynamic nature of the gold market, prices change everyday and are often displayed on popular media sources. There has been considerable changes in price within 5 years and sometimes even within a year. It was not clear whether and to what extent price plays a role in gold purchases, although it has often been tacitly assumed that it does.

In a previous research project by the World Gold Council (WGC) that investigated “the role of gold in India” conducted in September 2006, it was observed that gold demand is quite price-inelastic so Indian demand is not necessarily negatively affected by increases in gold prices (although affected by markets).   We started out by wondering what matters in the mind of an average customer? How do people talk, discuss and think about Gold in India? How much is the role of price?

Among one group of people, who were not regular investors, we found a marginal effect of price and the actual purchase was mostly driven by occasions. For investors though, price played an important role. The analysis brought out multiple important aspects of gold. It turned out to be a social asset which resonated with almost all of our participants. Quite specific to the indian culture, gold was conceived to be a “stree-dhan” literally meaning a lady’s wealth. Participants also discussed about the hedonic value associated with such an asset and the norms of passing it on in the family. On a socio-cultural side, gold was a gift almost mandated for socially close ceremonies, especially weddings; as it was quite clear that gold was a more valuable asset to be gifted. Importantly, the valuation and perception of gold being an asset is related to it being an investment. Some also discussed physically separating gold into mental buckets (mental accounting) where part of the gold was for trading and part of it was a non-tradable social investment. Price emerged as a nominal marker and most people perceived gold as a stable long-term investment which appreciates over decades. While the dominant understanding was that gold will appreciate more in the future, irrespective of the purchasing price, the experiences of gains and losses was also evident. Thus, we realized that the importance of price is colored by purchase occasions, motives, goals, future intentions and there is a hedonic value beyond the obvious economic aspect (as a investment hedge against inflation). However, when it comes to selling, most are reluctant. Incredible!.

Funded by India Gold Policy Center, IIM Ahmedabad supported by the World Gold Council.. With Professor Arvind Sahay, IIM Ahmedabad.

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(C) Sumitava Mukherjee, with some rights reserved. You are free to share and re-publish this article anywhere. Licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

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