Gold is one of the two ways to preserve wealth across generations, and an asset that holds it value in times of uncertainty and unrest.
Gold prices have crossed yet another high in January 2025, crossing Rs 83,000/10 grams, up nearly 30% over the past year. If not for the 9% cut in customs duty in July 2024, the price would have been past Rs 90,000. Gold has long been favored by Indians to preserve wealth across generations – as per the World Gold Council estimates, Indian households hold an estimated 24,000 tons of gold – at the current market prices this stash is worth an astounding $2.3 trillion! The large number of finance companies and banks that offer loans against gold in India show that this is an asset which can be monetized in times of need.
100 Trillion Dollar Banknote, Zimbabwe, 2008
Economists and finance professionals often criticize gold for being a ‘dead investment’, which doesn’t generate a return. This is a misplaced criticism: not every investment needs to generate a return. Some investments are also made to store and preserve value, and in this aspect, gold is unmatched. For instance, it is easy to purchase a gold coin which is 100 or even 200 years old, for some premium to its melt value. It was valuable then, and is valuable now. Now try to think of a share or a financial security which has been around for this much time. Most of the blue chip stocks of 100 years ago, India or worldwide, have been long consigned to pages of history. In fact, many countries and governments have not lasted this long – think of the Soviet Union (1922-1991), and the Republic of China (1912-1949). Gold is one of the two ways (apart from land) to preserve wealth across generations, and unlike land, it is mobile.
The past few years have seen much uncertainty around the world – pandemic, conflicts and geopolitical upheavals – which have all increased the allure of gold. Most currency notes across the world carry the words ‘I promise to pay the bearer’ or some variation thereof. Savers and investors often find that this promise is easily diluted or broken – by inflation. The U.S. national debt, which is $36 trillion and growing, became an issue during the recent Presidential election, with incoming President Donald Trump vowing to make the government more efficient and cut down unnecessary spending. High level of government debt pushes down the value of money – making things more expensive – something felt by the average voter.
Developed world currencies such as the U.S., British Pound and the Euro lose value graudally – for many emerging economies, the process is much faster. For instance, the Turkish Lira has lost over 80% of its value against the U.S. Dollar in the past five years. Egypt, which has a similar income level as India, and is a major importer of food and energy, saw a massive 40% devaluation of its currency in 2024. All such shocks eventually hurt savers/investors holding these currencies. The worst example of such government profligacy in recent times can be seen in Zimbabwe, which witnessed hyperinflation from 2007-09. During the worst phase, prices were doubling every day! One of the relics of the time is the 100 trillion dollar (Zimbabwe) banknote – 100, followed by 12 zeros! Gold is immune to such value destruction.
(Amit Bhandari is the founder of tezbid.com, a digital numismatic store)
