What happens when you tell Indians to stop buying gold?

For decades, Indian families have celebrated weddings, births, festivals and holidays centered on gold and these traditions are passed down from generation to generation. Take the wedding industry, for example, where about half of the gold that Indians buy each year is for a wedding. With an estimated 10 million weddings taking place every year in India, the country sees a lot of gold buying out of love.

That’s according to a 60 Minutes feature on the role of gold in India’s wedding industry. If you missed it, here’s the link on our website.

India’s culture is very different from that of many Western countries. I’ve been to many Indian weddings and have witnessed this special and unique celebration as well as a very tight bond among families.

However, the record gold buying we are seeing today isn’t only out of love. I believe Indians are also buying out of fear due to its infamously poor and corrupt government policies.

I often say government policies can be precursors to change. Good policies can drive economic growth and markets respond positively. Bad policies can have the opposite effect. At the same time Indians buy gold out of love for their family and close friends, they are also buying gold out of protection.

Take a look at the chart below, which shows gold’s return in Indian rupee compared with gold’s return in the U.S. dollar. In the U.S., where the dollar has strengthened, gold has increased only 12% on a cumulative basis over the past three years. But in a country with a significantly weakening currency, gold gained nearly 50%.

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