India virtually imports all the gold it requires, with mining no longer worthwhile and recycling of used gold insignificant. In April and May 2020, the gold imports fell by 99 per cent. Banks, which are the importers, were quick to read the tea leaves — marriages are stalled and malls are closed — and therefore domestic demand for jewellery is not likely to pick up. The Indian Bullion and Jewellers Association (IBJA), a tight clique of 10 big and influential jewellers, provides daily price quotes based on international prices, the dollar-rupee exchange rate, taxes and profit margin. This is strictly adhered to across the nation. Indian builders often accuse cement producers of cartelisation and the public accuses oil marketing companies, too, of similar conspiracy to fix rates despite the claim of fuel prices being decontrolled. But not many know that gold prices are also set in stone uniformly across the country.

In short, both oil and gold are held hostage by international prices. And internationally, gold prices are on the rise, as they are perceived safe haven assets in these troubled times. Exchange traded funds (ETF) in the US and Europe have been piling up gold — almost as an encore of what they did in 2009 on the back of the US mortgage financial crisis — resulting in an 18 per cent surge in demand for gold during Covid times. This has more then offset the lack of demand by the traditional buyers of jewellery in India and China, as against the investment demand for the yellow metal in Western nations.

There have been feeble attempts by some jewellers to break free from the IBJA diktat and offer discount to spur demand, but consumers by and large are staying away. Demand for gold comes from another significant set of buyers — those who see wisdom in parking their ill-gotten wealth in the commodity. Though real estate is a favourite among such buyers, that industry is in a greater limbo amid Covid. In any case, with the economy going down the hill, accumulation of black money, too, has taken a hit, resulting in plummeting investments in both real estate and gold.

An estimated 22,000-25,000 tonnes of gold are lying as assets with Indian households, according to the World Gold Council. Rural India accounts for 65 per cent of this gold stock. Amid the Covid crisis, people have pledged their gold in exchanged for liquidity. The rise in gold prices may be a dampener for purchasers but a boon for gold-loan takers, as it also leads to a rise in value of the gold pledged, resulting in cheap borrowings (SBI has lowered its gold loan rate to 7.5 per cent per annum) despite the RBI diktat to keep the 28 per cent margin.

What the government must do is entice households and investors to sell. With gold sitting at record highs, those in need of liquidity might sell if sufficiently persuaded. SBI and post offices, with their ubiquitous presence (especially in the rural areas) can be made the official agencies to purchase lest they are duped by the local money-lenders and goldsmiths. Tax sops can also help, especially a short window for exemption from capital gains tax. As it is, gold in India is perceived to be an unproductive asset, locked up in bank lockers and dingy lofts. It’s time the commodity joined the mainstream economy and staunched the outflow of precious foreign exchange. Recycled gold can be an effective, if not a complete, substitute for imported gold.

Normally, prices tumble on the back of lack of demand, but gold in India has remained impervious to this rule.

The writer is a Chennai-based chartered accountant