Gold Doesn’t Rust

In his book The Culture and Civilisation of Ancient India in Historical Outline, historian DD Kosambi speaks of how Hinduism in ancient India advanced by assimilating different tribes and groups into it. It had caste by then and there was the question of where the new group must fit. If the king was powerful then he couldn’t be relegated downwards. To incorporate him into an upper caste, something striking had to accompany the process. He writes, “Several southern kings of tribal origin boast of having had the ‘Golden Womb (hiranyagarbha)’ ceremony performed. This is carefully described in some Puranas. A large vessel of gold was prepared into which the chieftain would be inserted doubled up, like the foetus in a womb. The Brahmin ritual for pregnancy and childbirth was then chanted by the hired priests.” The womb of gold thus gives rebirth along with new castes, even the highest ones. “Some of the ‘reborn’ medieval kings might claim the Brahmin and Kshatriya caste at once, like the Satavahana Gotamiputra. The Brahmin priests received the golden vessel as part of their fee, which made everyone happy,” writes Kosambi.

Note that the womb had to be of gold indicating how Indians viewed the metal as something immeasurably precious. It is an obsession that has carried over to this day and is most apparent during Diwali. On Dhanteras, which falls on November 6 this year, Indians will head to gold shops to buy gold, having planned for it the entire year. Demand peaks during this time and 2026 has a few welcome elements. In 2025, consumers had a problem because many just found the yellow metal absurdly overpriced—gold had jumped close to 60 per cent since the beginning of the year. This was not normal. People buy gold because it has been the hedge against inflation ever since man became an economic animal. What you have loses value every year—the paper currency in your pocket, the money in your savings account, etc—because what it buys has increased in price. There is no escape from inflation. It is only a matter of how much. Governments try and fail to keep it under control. For a long time, the US, for instance, through various machinations, kept it under 2 per cent, but is now losing the fight. What governments are unable to do, gold manages. It is the historical hedge against inflation, often overtaking it. Even uneducated villagers have instinctively known this. So they buy gold, primarily as ornaments which do double duty, adding to one’s personal allure while also being a form of savings that keeps its value. A 60 per cent leap in just one year is not common and so those who already had gold last year, were celebrating but new buyers weren’t pleased. This year has seen the opposite phenomenon. The price of gold has tanked by 20 per cent, since it peaked at the end of January.

Gold has endured as an asset for thousands of years because it is a safe haven. When things go wrong, it comes to the rescue. And things have been going wrong this year but without gold living up to its promise. There are reasons for it. On January 30, its price crashed precisely because it had risen so steeply. If you put Rs 1 lakh in gold in January 2024, you would have got around Rs 2.6 lakh in January 2026. That’s a 61 per cent compounded jump every year. This was led by a change in geopolitics. Not just individuals, countries were stocking up on gold. After Russia invaded Ukraine in 2022, the US and Europe imposed sanctions and froze US$300 billion of Russian central bank reserves held with them. They could do it because the US dollar is the currency with which trade happens and so countries maintain a reserve of it. Once Russia couldn’t access its own money, all countries quickly realised how vulnerable they too were if they held US dollars as foreign exchange reserves. The substitute asset to hold if they had to trade was gold. China, for instance, the second economic superpower in the world today, has been steadily increasing the amount of gold it has in its vaults for such an eventuality. Dedollarisation, as the word goes, also led to traders in gold speculating on its price going up. And then, as often happens, when demand outpaces supply, prices began to enter unrealistic territory. The greatest investor in the world, Warren Buffett, has managed to see his portfolio compound by around 20 per cent annually in his lifetime. Nothing can go up 60 per cent every year forever. Mean reversion had to catch up.

There were triggers for it. The US went to war with Iran in February believing they would win within weeks but it still continues. Normally, uncertainties are when people flock to gold. This conflict was however in a region where another commodity that flows through the veins of the world was located, oil. With Iran blocking the Strait of Hormuz and attacking neighbouring oil-producing Gulf states, the price of Brent crude is now over US$100 from about US$ 70 before the war. Normal economic calculations are upset and counterbalancing measures have had an effect on gold. The war and oil hike have led to worldwide inflation and that in turn has made central banks increase rates. Your bank account now gives more interest if you put your money there. That means, in the short term at least, people don’t feel the need to move to other investment classes. Gold, this year, was under pressure from its own past performance and a variety of external factors.

When Indians once again do their Diwali purchase of gold, are they making a mistake? Will the downward trend of gold continue? It is not possible to predict anything about any investment, but gold’s long-term prospects don’t look bleak. It has something gathered through millennia, trust. It is also a very scarce metal. The total amount of gold available in the world is limited and only increases by around 1.8 per cent annually by mining. As a primer by the World Gold Council describes: “The total above ground stock is large in both physical and financial terms: over 220,000t of gold have been mined throughout history, valued at approximately US$31tn at the end of 2025. A useful way to visualise this is the ‘gold cube’: if the entire above ground stock were melted down it would fit into a cube with sides of roughly 22.5 metres (74 feet).” This cube cannot change much in dimension because there is not that much left to be mined. In October, there was news from a startup claiming it had been able to make gold in a laboratory using nuclear fusion. But no commercial nuclear fusion plant exists in the world today, so it remains just a concept.

Secondly, dedollarisation of the world is an inevitability. It won’t happen overnight but even allies are wary about the US because of the presidency of Donald Trump. The next presidents might be more friendly but the possibility of American one-sided actions is not going away. Until a new universally acceptable medium of trade takes the dollar’s place, gold is the only form of reserve countries will want to stock up on.

Demand is meanwhile building up with the festival imminent. A World Gold Council report of October 20 noted that manufacturers were reporting healthy order flows and industry feedback showed footfalls improving in stores. “Old-gold exchange remains an important feature of the market, with jewellers offering additional incentives to encourage consumers to trade existing holdings for new purchases; this also contributes to domestic gold supply,” it added. Indians unable to afford it are using gold to still get new gold.