Gold price touches ₹1 lakh per sovereign, buyers feel the pinch

The recent surge in gold prices, with a sovereign (8 grams) touching an unprecedented ₹1 lakh, marks a significant economic event with wide-ranging implications for Indian households, particularly during peak cultural seasons. To truly grasp its impact, we must delve into the background, key drivers, and its ripple effects across the Indian economy and society.

**Background Context and What Happened:**

Gold has always held a unique position in India, transcending its role as a mere commodity to become a cultural cornerstone, a symbol of wealth, security, and auspiciousness. For centuries, it has been an integral part of religious ceremonies, festivals, and most notably, weddings. India is one of the world's largest consumers of gold, primarily driven by jewellery demand. A 'sovereign' is a traditional unit of gold measurement, equivalent to 8 grams, widely used in South India. The recent price milestone of ₹1 lakh per sovereign represents a nearly 25% increase in just a year, and a staggering rise over the past decade.

Several global and domestic factors converge to influence gold prices. Globally, gold is considered a 'safe-haven asset' – an investment that typically retains or increases in value during times of economic uncertainty, geopolitical instability, or high inflation. Recent drivers include: persistent global inflation, central banks across the world increasing their gold reserves to diversify assets and hedge against currency fluctuations, ongoing geopolitical tensions (e.g., conflicts in Ukraine and the Middle East), and expectations around interest rate changes by major central banks like the US Federal Reserve. When interest rates are expected to fall, gold, which offers no yield, becomes relatively more attractive compared to interest-bearing assets. Domestically, a weaker Indian Rupee against the US Dollar also makes gold imports more expensive, contributing to higher local prices, as India imports a significant portion of its gold requirement.

**Key Stakeholders Involved:**

This price surge impacts numerous stakeholders. **Consumers**, especially middle and lower-income families, are directly affected. For those planning weddings, particularly in states like Kerala where gold jewellery is a crucial component of a bride's trousseau and a traditional form of security, the financial burden becomes immense. **Jewellers and the gold industry** face a double-edged sword: higher prices can deter some buyers, potentially impacting sales volumes, but also increase the value of their existing inventory. **Banks** are involved through gold loan products, where the rising value of collateral (gold) can be beneficial, but also poses risks if prices decline sharply. The **Reserve Bank of India (RBI)** plays a crucial role in managing India's gold reserves and influencing monetary policy, which indirectly affects gold demand and prices. The **Government of India** is also a key player, as gold imports contribute significantly to the current account deficit (CAD) and are subject to import duties under the Customs Act, 1962, and the Foreign Trade (Development and Regulation) Act, 1992. Changes in these duties can influence domestic prices and manage import volumes.

**Why This Matters for India:**

This price surge has profound implications for India. Economically, high gold prices, coupled with strong demand, exacerbate India's **Current Account Deficit (CAD)**, as gold is a major import item. This can put pressure on the Indian Rupee and impact overall macroeconomic stability. For households, gold serves as a significant store of wealth, particularly in rural areas, and its appreciation can enhance perceived wealth, though actual realization requires sale. However, the high price also makes it less accessible for new purchases, shifting consumer behaviour towards lighter jewellery or even imitation jewellery. The **jewellery industry**, a significant employer, faces challenges in managing demand fluctuations. Socially, the cultural expectation of gold at weddings can lead to increased financial stress or even debt for families, underscoring the deep-seated societal importance of the metal. From an investment perspective, gold continues to be seen as a hedge against inflation and market volatility, attracting investors seeking safety.

**Historical Context and Future Implications:**

Historically, India has seen various policy interventions regarding gold, such as the Gold Control Act of 1968 (repealed in 1990), aimed at curbing gold smuggling and reducing demand. While direct controls are no longer in place, the government continues to manage gold imports through duties and schemes like the Sovereign Gold Bond (SGB) scheme, launched in 2015, which offers an alternative to physical gold, helping reduce import dependence. The GST Act, 2017 also levies a 3% GST on gold jewellery.

Looking ahead, gold prices are likely to remain volatile, influenced by global economic health, central bank policies, and geopolitical developments. If global interest rates begin to fall, gold's appeal as a non-yielding asset could increase further. The government might continue to use import duties to manage CAD or promote non-physical gold investment avenues. For consumers, this trend could accelerate a shift towards more practical and lighter jewellery designs, or even a re-evaluation of the cultural necessity of extensive gold purchases, potentially leading to a gradual societal change over decades. The RBI's monetary policy, guided by the Reserve Bank of India Act, 1934, will continue to play a role in maintaining economic stability, which indirectly impacts all commodity prices.

While no specific constitutional article directly addresses gold prices, the overarching **Directive Principles of State Policy**, such as Article 38 (promoting welfare of the people) and Article 39(c) (preventing concentration of wealth), provide the framework for economic policies that aim to mitigate the adverse effects of such price surges on the general populace and ensure equitable economic development. The government's actions, through fiscal and trade policies, are ultimately aimed at achieving these constitutional objectives.