The government has tried every trick in the book to wean Indians off gold but there is no sign that Indians have lost their appetite for it.

Some 4.5 lakh investors have bought over Rs 2,200 crore worth of Sovereign Gold Bonds because these bonds guarantee a return of 2.75 percent over the invested gold price. But far from shifting gold demand from physical metal to paper, gold prices remain buoyant at over Rs 31,000 per 10 gm. What the gold bonds have done is enhance the demand for gold-backed products. It has not dented the demand for real gold.

In the year to date, India has seen a 26.7 percent rise in gold prices in rupee terms, not something that will dent anyone’s belief in the metal’s long-term utility as a hoard of real value. Even in U.S. dollar terms, prices have risen nearly 25 percent in calendar 2016, driven by strong investment demand amidst geopolitical concerns over the war on terror and other uncertainties. Since 2001, Indian rupee prices of gold have yielded annual average returns of nearly 14 percent, comfortably beating inflation.

According to the World Gold Council, the first half of 2016 (January-June) saw gold demand of 2,335 tonnes, the second highest ever in a first half. Much of this was driven by U.S. investment demand in a year of uncertainty over presidential polls.

Indian consumption of gold actually fell 18 percent in the second quarter of 2016 to 131 tonnes, but this is largely due to rising gold prices, not reduced underlying demand. With the festival and marriage season fast approaching, gold demand is expected to surge again.

Year-to-date, global gold demand surged 18 percent, thanks to a 127 percent rise in investment demand, and despite a 17 percent fall in jewellery demand.

Despite efforts by all central banks to get people off the metal, the world is not showing any inclination to let go of gold. One wonders why our leaders think weaning people off gold is going to work in India.

We have been and will remain the ultimate hoarders of gold. One wonders why the government wants to pay gold investors an additional return over the return already provided by gold. It makes little economic sense to subsidise gold investors.