Gold denominated in Indian rupees just skyrocketed up near record highs, a far cry from recent dollar-gold action. Much of this extraordinary rally was fueled by the near-collapse of the Indian currency to new record lows against the US dollar. India’s deepening currency crisis has major implications for domestic gold demand and thus global gold prices.
Indians’ deep cultural affinity for gold is legendary. For decades it was the world’s biggest consumer of gold, although China is overtaking it now. According to the World Gold Council, in the first half of 2013 India still accounted for a staggering 28% of global consumer gold demand! The 566.5 metric tons of the yellow metal Indians bought in the last two quarters greatly dwarf Americans’ 83.4t purchased.
It is estimated that Indian households hold 31,000t of gold worth a breathtaking $1395b at $1400 per ounce. A single temple alone in southern India (Tirumala near Tirupati) is believed to hold 1000t itself, worth $45b! It gains another 3t annually in gold offerings from devout Hindu pilgrims. More than half of Indians’ personal savings is held in hard assets including land, houses, cattle, and of course gold.