Gold Rate Fluctuations and Their Impact on Household Investment Behaviour in India

Abstract

Gold has been a significant part of the financial and cultural life of every Indian family. Apart from being an ornamental with a good look, gold is generally considered as a safe investment in times of uncertainty and high inflation rates. The fluctuation of gold prices in the recent past has influenced the saving and investment decisions of the households of different income groups. The present study is designed to explore the impact of volatility in gold prices on the investment behaviour of the Indian households to show their investment preference, perception of risk, and the financial decision-making process.

The data used in the study are primary and secondary sources of data. The primary data collected was the households of the urban and semi urban areas which was structured questionnaires. The secondary data was collected from the publications of the Reserve Bank of India, World Gold Council, government reports, journals and financial market sources etc. The study looks at how changes in the price of gold affect the saving decisions of households with respect to other financial investments such as bank deposits, mutual funds, insurance and equities.

The results show that gold as an asset is still considered to be a good investment because of its security, ease of liquidation and popularity. But, with significant price swings, a portion of investors has switched their investment strategies to other investment avenues. The study also confirms that variables including income, financial literacy, expectations of inflation and uncertainty of the markets have significant effects on the behaviour of households in the face of price fluctuations in gold. Young investors are more interested in diversified financial assets than traditional households are, which indicates that they have the leeway to invest in gold assets to a lesser degree. Young investors have a higher interest in diversified financial assets than traditional households, which gives them more flexibility to invest in gold assets to a lesser extent.

The study finds that the volatility of gold prices has significant influence on household investment plans in India and also indicates that households in the country need to be more financially aware and plan their investments diversely.