There is a piece of advice in the Gospel of Matthew. Do what they say, not what they do. The verse in Matthew 23:3 reads:

The scribes and Pharisees sit in Moses’ seat. So practice and observe everything they tell you. But do not do what they do, for they do not practice what they preach.

In a world driven by hypocrisy, unless we are talking about mortal sin or crimes against humanity, we should often do the exact opposite of what Matthew advises.

Do what your rivals and enemies actually do, not what they say they are doing.

If China says it wants peace, it means prepare for a breach of peace. If the US criticises India for its record on freedom of religion or human rights, we are probably doing some things right.

For neither China nor the US is an exemplar on these issues. They are hypocrisy personified.

But the point I am coming to is an economic one: there is always a tension between what the experts say we must do, and what is in our real interest.

The government, for example, wants corporations to start investing more; but, barring a few sectors, investing more when you are not sure demand will hold up is financially irresponsible.

The government would also like households to spend more to give the consumption side of the economy a boost, but in an uncertain economic environment for jobs and incomes, saving more is an absolute must.

For some time now, our government and the Reserve Bank of India (RBI) have been trying hard to wean us away from holdings of physical gold, not because it is not the right thing to do in balancing our asset portfolios, but because it impacts our trade deficit negatively.

As of a few months ago, Indians had bought more than 100 tonnes of paper gold, including gold exchange traded funds and sovereign gold bonds (SGBs).

The bonds are particularly good for investors because they not only generate returns (2.5 per cent per annum), but are exempt from long-term capital gains when they mature. I believe investors must have SGBs in their portfolios, even though current prices are high.

Between physical gold and SGBs, I personally prefer the latter, for it means I get the benefit of a safe haven asset without the hassles of holding the metal physically and stashing it away in safe deposit vaults.

To come back to why I prefer not to follow Matthew’s advice, here is what has been happening with those who are telling us not to buy gold.

Between 2017 and today, says The Economic Times, the RBI bought nearly 800 tonnes of gold for its official reserves, apparently to diversify its risks — risks created by the US which has disregarded international law to freeze Russian dollar assets after it invaded Ukraine.

Ruchir Sharma, investment strategist, wrote in Financial Times that the high demand for gold is coming from central banks who want to reduce the share of the US dollar in their official reserves, and not the “usual suspects”, ie, large and small investors.

Sharma wrote that central banks accounted for a third of monthly gold demand, and are buying more gold than they ever did since 1950.

Why is buying gold a good thing for central banks and not for individuals, who face enormous risks in an uncertain economic environment?

Indians have always had less faith in government promises than in gold for a simple reason: gold has proved its mettle over time. It is a good hedge against inflation and economic uncertainty over the longer term, even if short-term prices fluctuate adversely.

Data with goldprice.org shows that gold has delivered positive returns in 12 of the last 15 years in rupee terms, with positive returns in other currencies, too. The US dollar may or may not remain a safe haven, but gold has always remained one.

Over 15 years, gold has delivered 11 per cent annual average returns in rupee terms, which is more than one can say about safe government bonds or fixed deposits.

The lesson is simple: do what they do, not what they say. Buy gold, for that is what the RBI is doing.

Paper Gold

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