Gold is no longer confined to jewelry but is becoming a preferred investment tool in India. At present, India accounts for 23% of the world's jewelry demand and around 35% of global investment in gold comes from the country. However, a large number of investors put their money in gold, not only for growth in investment, but also to use the metal for making jewelry later. The article discusses the relevant issue.

In India, gold is traditionally used as a jewelry item rather than as an investment vehicle. We attach a lot of sentimental value to gold and usually do not appreciate its value. However, internationally gold is considered to be an excellent investment vehicle and a preferred hedging instrument against erosion of purchasing power. This is particularly true in the case of American investors, since gold is valued internationally in terms of dollar. There is also a proven relationship between the value of dollar and the value of gold. The fundamental reason for this is that, gold is another form of money. Gold as an investment instrument is a competitor against the dollar and all other forms of paper money. Hence, when the value of paper currencies like dollar decline, there is still an increase in the price of gold.

We tend to perceive that when the value of dollar falls the value of gold increases. To understand the forces behind such a phenomenon, we need to have a cursory look into history. Since the end of the Bretton Woods era in 1971, the dollar has become the world's most dominant and irredeemable currency as well as the primary reserve asset of central banks all over the world. In comparison to this, if we look at the value of dollar under gold standard, we find that the value of dollar was judged not on faith, but on the dependability of exchanging it for gold. The value of dollar was measured in terms of gold and its value fluctuated accordingly based on people's estimation of the ability to convert currency into gold.

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