It is in times of uncertainty that gold is doubly touted as a “safe haven” for those looking for shelter from the more traditionally volatile investments, like stocks. Compared to such an investment, where even the biggest blue-chip companies can (and have) failed, an investment in gold often seems less risky.
Confirming that “old indeed is gold” a study released by India Gold Policy Centre (IGPC) at a recently convened meet at IIM-A, shows that the proportion of household savings in gold across covid-vulnerable districts (CVD) shot up by 105% during 2020-21 as against 2015-16.
CVDs are districts with a higher covid caseload per 1000 population. Households in CVDs, which saved 5.6% of their total savings in the form of gold in FY 2016, ended up doubling the share of gold to 11.3% in their total savings in the pandemic-ridden FY 2021.
In contrast, the share of savings in financial assets shrunk by 31.7% during the same period. As compared to CVDs, the share of gold in household savings increased by only 62%in non-CVDs.
As the world’s earliest form of currency, gold’s physical properties have endowed it with a reliable store of value. It is widely available enough to trade but is in finite supply, so is rare enough to be considered valuable and unlike some metals it is not corrosive, making it durable.
The study was carried out across 21,611 households across 142 districts in India during the pandemic worst, 2020-2021. Among districts covered in Gujarat were Ahmedabad, Surat, Vadodara, Rajkot, Jamnagar, Junagadh, Banaskantha and Valsad. The study mapped the flow of savings in the given year and not the stock of gold holding, thereby indicating the traction towards gold rising during any crisis period. Significantly, the study also notes how affinity towards gold savings was higher in districts where the availability of hospital beds and medical infra stood challenged.
Explaining the conclusion, Prof Sanket Mohapatra, IIM-A Economics faculty and member, IGPC study, stated: “The study establishes gold as a safe-haven asset. People most vulnerable to financial uncertainty tend to add more gold to their savings portfolio. Traditionally, gold has been believed to be a hedge against inflation.”
The price of gold, which is normally in dollars, moves in the opposite direction to the greenback. This is because if the U.S. currency gains in value, then it takes fewer dollars to purchase one ounce of gold.
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