INDIA'S strong culture of Buying Gold is "an obsession" which must stop, according to the Reserve Bank's deputy governor.
Calling for a "social and cultural revolution" at a private event in Mumbai last weekend, K.C. Chakrabarty said that "90% of India's gold demand is jewelry or to offer to God.
"Both have to stop."
Last year saw Gold Buying by households in India – which has virtually no domestic mining production – top 969 tonnes according to market-development organization the World Gold Council, equal to some 2.6% of the country's annual economic output.
Long the world's #1 source of gold demand, Indian households buy today one ounce in every 5 sold worldwide, hoarding an estimated 16-20,000 tonnes all told, more than 10% of all the gold ever mined in history.
"The problem is that it has become a culture where the poor people are Buying Gold," says Chakrabarty, quoted by India Express and a raft of other news outlets.
"See the tragedy?" asks Chakrabarty. "For that [reason], unnecessarily our current account is suffering."
India's current account deficit jumped in fiscal year 2011-2012 to a 30-year high of 4.2%. The outflow of cash need to pay for the excess of imports over exports was widely blamed for the worse-than 20% drop in the Indian Rupee on the forex market.
However, the Indian Rupee has lost an average 5.3% of its value each year since 1980 versus the US Dollar.
Over that time, Buying Gold has delivered a positive gain for Indian households in 25 of those 32 years, returning an average 10.6% per year.
"Wearing gold as an ornament was a culture when you were a rich society, when you were contributing to 30% of the GDP of the world," Chakrabarty went on.
"Today, we have become a poor country, we need to change our culture."
Thanks to the Rupee's continued slide, prices for Buying Gold in India have held near all-time highs so far in 2012.
Coupled with a four-fold increase in bullion import duty – explicitly aimed at cutting inflows, as well as boosting India's domestic smelting and refinery industry – that has seen gold imports fall by 47% year-over-year according to the Commercial Intelligence & Statistics agency, totalling $9.47 billion by value in the Jan-June period.
Buying Gold to defend your own savings today...?