This article was written by our India Correspondent, Vaishali Kamath.

Gold, after platinum, is the most preferred and precious metal of all throughout the world.  It has allured the people of all ages, even pre-historic people, by its inherent quality of attractive color, malleability and strength to tolerate weather change.  The metal has thus gained its universal acceptance and value.

India is one of the largest consumers of gold in the world.  About 90% of the gold in India lies with individuals.  Nearly every middle class family owns gold jewelry which is central to weddings and rituals. Indian people buy gold throughout the year and on special occasions and festivals. Although gold has many applications and uses the main reasons that Indians keep gold are:

• Gold is considered equal to liquid cash – As a security it is the most liquid of assets one can own as it is readily converted to cash in an emergency.

• Gold is a status symbol – In India especially, gold symbolizes wealth.  In Indian weddings the bride is adorned with gold jewelry which forms a part of her dowry and indicates her family’s status.

• Gold is a good investment – Gold is an investment that has consistently increased in value.  It is an effective diversifier which helps reduce portfolio risk and can thereby be considered a secure investment.   As gold prices have risen during the global economic slump, Indians, after briefly flirting with the stock markets and mutual funds, have returned to their age old preference for gold as a safe investment.

• Gold is a good gift item – Gold is precious and worthy across all cultures and times.  It has great ornamental value because it is malleable and ductile.  These aforementioned qualities allow it to be molded and fashioned into intricate jewelry.  Gold Jewelry is given as a gift during weddings and other special occasions.

• Gold has great religious significance – Gold symbolizes the Hindu goddess of wealth and prosperity and is therefore considered to be highly auspicious.  Indians pass on gold down from one generation to the next as part of ancestral property.  Gold is also offered to deities as part of special prayer ceremonies.

India has traditionally been an agrarian economy and much depends on how the monsoons (rainy season) pan out, inflation and the performance of equity markets.  Monsoon plays a major role in the rural areas, which predominantly depend on agriculture and allied activities for sustenance which in turn contributes to the demand for gold.  In 2010, the demand for gold had been stronger than its demand in 2009 when the sales for gold declined by over 19%.  Traders in India are hopeful that the harvesting festival in late March followed by the wedding season (most Indian weddings take place late spring or June through September) will set a strong pace for gold sales in 2011. The volumes on the exchange traded funds are likely to jump about 4 times to 50 tons as investors seek a safe hedge against rising inflation and diversify their portfolio to offset losses in a declining stock market.

While India is the largest consumer of private gold, its government holdings of gold as an asset are at modest levels.  In recent news, this was also the reason that RBI – Reserve Bank of India bought 200 metric tons of gold from IMF (International monetary fund).  While India’s current gold holdings account for just 3.7% of its assets and are said to be historically low, buying 200 tons in addition to the 358 tons it already holds is expected to bump up the gold reserves to more than 6%.  The dash for gold is prompted by the unsteady dollar and countries such as China and Russia have already gone this route.

The soaring gold prices have led Indian Banks to push customers toward gold loans.  Since every house hold in India owns gold this is an easy and convenient way for consumers to secure loans.  These “gold loans” have become more popular as small personal lending has dried up due to rising defaults on risky loans.  The global economic slump and the rise in gold prices have returned the Indian middle class to their age old preference for gold as a safe investment after briefly flirting with the stock markets and mutual funds.

Here is links to more information about Gold in India.

Gold Imports by India Likely Reached Record

India gold imports may rise 15% in 2011

India’s Love for Gold

This article was written by our India Correspondent, Vaishali Kamath.

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