Its known that the obsession for everything gold runs very high in the subcontinent neighbours. Be it weddings, graduation, birth of a child, and, at times, even birthdays, gifting something made of gold is considered a great gift.
Besides the aesthetics that draw people towards this metal in India and Pakistan, investment appeal also plays a huge role in the gold obsession. And thats why demand for gold coins and gold bars or biscuits is quite high in these countries.
Theres another reason why gold is such a favourite with Indians and Pakistanis; people in these countries are traditionally averse to other forms of investments, such as savings deposits or certificates. Besides, a large percentage of the population in unbanked, making gold the only investment option available for many.
Ease of purchase also plays a very big role, as even though the Pakistan Mercantile Exchange (PMEX) now offers futures contracts in gold, the tedious paperwork and lengthy hassle of going through the process is a great deterrent for many from investing in the metal when they can conveniently go to any jeweler and buy a gold bar.
Of course, there isn any legit certification for the authenticity of the weight and quality mentioned on the bar, and the lack of documentation makes it an even raw deal. However, for an economy where a large section is informal, these are rarely considered an issue amongst Pakistanis.
But someone has to pay the price for this infatuation with gold, and in the case of India and Pakistan, it happens to be the national economy, the latters being quite flailing already. For one, savings into physical gold means that a considerable amount of money stays out of the economic system, which could have otherwise been used for developmental purposes.
For another, gold has to be imported to meet local demand, putting a dent on the external account. While Pakistans import bill for gold came to $172 million in FY12, that of Indias stood at a whopping $56 billion.
And its not as if this love for gold is anywhere close to die down, especially since the financial crisis has made the safe haven appeal of the metal shine out even more.
Rather than trying to make people break away from this decades-old tradition, perhaps the first step for the respective governments should be to bring this huge chunk of savings in the national net. Its going to be tough bringing these savings under the net, but streamlined procedures for gold contracts, or even mandatory documentation requirements for physical buying can be possible ways.
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