Gold should lose luster. Are you astonished? Diversion of funds for investments as gold to bank deposits will largely uplift the economy and save interest on the government and individual sides. 

See below the facts and get convinced of the reasons.

Many people are under the impression that investment in gold would yield higher returns when compared to the yield from investment from bank deposits, post office deposits, etc.

My experience and the observation there from prove the contrary. 

My father purchased three sovereigns of gold ornaments just for Rs.500 (marginally less) in the year 1968. The same three sovereigns of gold, at today’s rate works out to Rs.32, 000.

Had the amount of Rs.500 been invested in the bank deposits or post office schemes, (with interest at 10% p.a. compounded on quarterly basis, the deposit would get doubled in a period of seven years) it would have yielded more or less the same amount of maturity value in the year 2010 (in fact it would be marginally more).  Then why go for investments in gold.

The deposits with banks and Government backed companies are very much safe and all the more liquid.  Had one kept the amount as deposits, the Government would not have ended up in borrowing heavy amounts either through domestic bonds or from international financial agencies.  (At one point of time India, has to pledge the tonnes of gold with the international monetary fund to tide over the economic depression then.  That could have been avoided).

The hard cash with the Governments would have led to implementation of many welfare measures, resulting in the upliftment of the economy as well as the individuals.  Besides, it would have saved a lot of interest burden, on the part of the governments. 

From the individual side also, there would have been a savings of about Rs.3, 129, as detailed below: 

Borrowing on the pledge of the gold jewels is a common happening.  About 60% of the gold purchases are pledged for variety of purposes like studies, medical expenses, business and are redeemed and let us assume that during the each slab of 7 years (from 1968 to 2010), the jewels worth Rs.1, 000 are under pledge for about 2 1/2 years with interest at 15% p.a. compounded on quarterly basis.

(Actually, in many cases the interest is very much more and in case of indigenous lending it is somewhere in the order of about 40% p.a. or more, with monthly interests and one month interest taken in advance at the time of pledge itself and additional service charges. Only in the recent past, the banks started issuing gold loans, pledging jewels.  Previously, this form of finance was out of their realm.  There have been many instances, when the pledged jewels were irredeemable, just because of the heavy interest burden.)

It means that there is an interest outgo of Rs.447 during each of the seven year slabs i.e. a total cash outgo by way of interest in all six slabs put together would have resulted in a loss of Rs.2, 700 in all. (Further, for loans on deposits, the interest rate is just 1% to 2% over and above the rate of interest on the concerned deposits.  But, for the jewel loans the interest has to be paid as above for the entire amount of finance).  Each time the jewel is pledged, the appraiser scratches the jewel on a touch stone to ascertain the purity of the gold and it is said frequent pledging will result in considerable reduction in weights of the ornament, though very small.  This loss, expanded to the entire pledging process. universally, will work out to a heavy loss to the borrowers. Had the funds been in bank deposits, this loss could not have been there.

Besides the above pecuniary loss, the other problems associated with the gold are:

Holding your investments in the form of gold either bars or biscuits or coins or ornaments are highly risky, as you would have observed from new clippings that there have been atrocious incidents of murder for stealing or snatching the gold ornaments.  (In some cases, murders have happened for the imitation jewels, considering it to be a real one.)

If the gold is in the form of ornaments, they may be outdated and to switch over to a new design, there will have to be two way losses by way of making charges and wastages which are inherent i.e. both at the point of disposing the old ones and also at the point of buying the new one.  These would have saved tons of gold.

Because of the people’s craze over the jewels, their rates have been artificially jacked up and have unnecessarily been fluctuating, without any reason for the fluctuation.  Otherwise, this amount of rise would not have been there and its value would have been very much under control. 

Under such a situation, only the bank investments would have been a wiser decision. 

We are attaching that much importance to an item, which we do not very regularly use.  Very rarely are they used, once the people attend functions or parties.  Therefore. limit the gold purchase to your modest requirements.

Going by the above facts, over inclination to the yellow metal has to be avoided.

At least from now onwards, if this awareness gets into the mind of the people, future borrowings could be vastly reduced.