The curious confluence of high gold prices, some smart marketing and a formerly obscure festival called 'Akshay Tritiya' has combined to create what could be called a new age of gold buying in India. I could be wrong but traditionally, the festival of Akshay Trithya as a gold buying occasion was quite specific to some communities and some parts of the country. I grew up in a fairly traditional environment in North India and had never heard the name till I came across it in advertising by a bank two or three years ago. I doubt whether the experience of anyone outside the Jain community is any different. Businesses offering various investment products based on gold have systematically promoted this gold buying, in the manner of greeting card companies promoting this day or that day every few days throughout the year.
Treating gold as an investment is almost hardwired into the Indian psyche. Investment apart, the logic of gold jewellery as streedhan in a patriarchal society is impeccable. However, things are a little different now and I'm not sure whether gold has the same characteristics as an investment any more. The rise of 'paper gold' or gold-derived financial instruments, has converted gold into yet another financial asset. As the vast ocean of liquidity rises and ebbs in the world's financial markets, so does gold.
Gold is now yet another hyper-volatile paper asset. We had the last round of gold mania in December 2009 when its price peaked. In the five months since, it fell 18 per cent, then languished at about the same level but has now risen to the previous peak. Gold has always been said to be a hedge against the decline of stocks and other assets, but recent experience belies this. Gold's recent bottom occurred in October 2008, exactly when you would have needed that hedge.
You could buy some gold for festive reasons, but to treat it as a fallback will no longer work. This is just another speculative financial instrument, driven to the same manic highs and lows that other such instruments are.