Gold is back. If it ever went away. Government data show that gold imports are rising sharply again, and could reach 950 tons for 2014-15. This is almost one and a half times higher than last year and almost up to the all time high level. Moreover, the restrictions and high duties of the recent past has apparently also lubricated a robust smuggling network so the real numbers could be substantially higher.
Not only Indians' deep faith gold being a great investment not going away, it shows every sign of growing steadily. The fact that gold's actual returns are quite poor is relatively unknown. Gold prices tend to get compared over the long-term, without any sense of what an annualised rate of return is and how it compares to other investments.
Let's compare it to equity via the Sensex, which begins in 1979 at a 100 points. Today, it stands in the vicinity of 28,000 or a growth of 280 times in 36 years. Over the same period, gold has risen 38 times. So ₹10,000 invested in the Sensex in 1979 would be ₹28 lakh today while the same amount invested in gold would be ₹3.8 lakh!
Despite the fact that we were a closed economy for about the first decade of this time, and the countless local and global scams and crises since, stocks have given seven times the return of gold. The question is, are such comparisons any use? Will a substantial number of people ever see gold as a poor investments. My guess is that in India, it will take a long time. Given the general distrust with which we view institutions, gold's unique feature is that for someone who doesn't trust the financial system, its a store of value that stands by itself, and doesn't need any system to underwrite its value. It could take a long time to change this.