Currency To Asset: Physical Gold Matters – Period | The Reason Why

Indian homes are museums of things no one remembers buying. Open a drawer, and you will find a bunch of old keys, mysterious screws, visiting cards, a Nokia charger, a web of wires, three cases of old spectacles – all kept because “they might be useful someday”.

Open another drawer, and you will find some real stuff – home loan papers, important documents, fixed deposit receipts, mother’s jewellery and so on. Half of these things are probably useless, but Indians don’t throw anything away so easily. Now imagine consultants telling you to keep only productive things and throw away all useless ones.

Will they consider gold as productive? Or imagine, just like demonetisation, what if the government tells us not to hold gold? What will be your reaction? By the way, Indians have around $2 trillion worth of gold in their homes, bank lockers or under the bedsheets.

Recently, Navneet Munot, MD and CEO of HDFC AMC, suggested that India should encourage its citizens to sell their gold and invest the proceeds in financial markets. On paper, the logic seems straightforward: sell idle gold, productively use the money, and boost the economy.

However, the economy and productivity don’t grow by shifting money into financial markets themselves. Real value comes from building innovative, globally competitive companies and fostering an ecosystem that rewards efficiency, research, and long-term growth. Without new productive businesses to absorb so much capital, we would end up inflating asset prices.

According to him, India is sitting on a gold treasure that is unproductive. But the reality is far more complex. Families rely on gold for all uncertainties, including weddings, education, and hospital bills.

Lack of social security, limited insurance penetration, and lower financial literacy in India make gold a go-to instrument for everything. It is not just an investment or jewellery; it acts as currency, insurance and an asset. People have emotional and religious connections, making it even more sacred.

Gold is also portable, liquid, universally recognised and carries no counterparty risk – qualities that even sophisticated financial instruments lack. The argument that gold is “unproductive” ignores the fact that households have trusted gold more than any other financial instrument for centuries.

Governments have taken gold from the citizens before. In 1933, President Roosevelt banned private gold ownership in the USA. People had to hand over their gold to the Federal Reserve. This move helped the economy but led to public outrage and mistrust.

People surrendered gold at $20.67 per ounce. Then, months later, the government revalued it at $35 - a 70% gain at the expense of citizens who no longer owned that asset. Experts criticised the forced transfer of private wealth under threat of penalties or imprisonment. It was a clear violation of property rights.

In principle, confiscating private wealth in such ways is not a good idea. Secondly, in the current times, the importance of physical gold has increased. A few years ago, I had a different view. I hated physical gold. But I changed my opinion after events like Covid and a few conflicts around the world. The Western world’s sanctions have worsened the atmosphere.

Consider the example of Venezuela. It needed its gold back from the lockers in the UK. But the UK government declined its request. That sent shockwaves across emerging markets, creating a sense of urgency to bring gold back into their countries. Even India brought all the gold back.

Beyond central banks, physical gold instils a sense of security, especially for people from distressed countries. Refugees have often carried gold coins and jewellery to exchange them for cash in the new country.

For them, a gold coin in hand is more valuable in a true sense compared to digital instruments. Gold can be exchanged for cash anywhere in the world, instantly and privately, without fearing government intervention — a feature probably only cryptocurrencies can replicate. But cryptocurrencies are not common everywhere; gold is.

India’s $2 trillion worth of gold is not idle. It is people’s insurance, liquidity, and cultural capital. Calling it “unproductive” misses a major point: gold steps in where the state fails to deliver social security and trust in institutions.

Until India builds stronger safety nets, better contract enforcement systems, and globally competitive businesses, households will continue to see it as their most reliable asset. 

Rather than mobilising gold from people forcefully, we need to create an economy where people feel confident enough to part with it. Only then will mobilising gold be successful. Yet, I believe, that’s not an ideal way to create a productive economy.

The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.