WSJ Discusses Why Indians Buy Gold

As it turns out, the biggest customer base for gold in India is farmers; that's why the monsoon season tends to help or hurt gold.

A lot of it has to do with popular customs. “There’s a widespread belief [in rural communities] that the price of gold and silver will always go up,” says bullion expert Bhargava Vaidya, the director of B.N. Vaidya & Associates. Many farmers invest in precious metals also because few can or want to have a bank account. “They don’t trust banks, they trust their jeweler,” Mr. Vaidya added.

The fact that gold and silver prices have gone up between 20%-30% year-on-year for the past few years has added credit to the view that gold is the best investment, Mr. Vaidya said.

Also helping gold is the wedding season. In addition to using gold as a savings account, farmers give their soon-to-be-married daughters jewelry like gold earrings. Although gold is still selling at the same rate overall, the price is making silver more attractive to more farmers. Demand shifts are balancing out new demand.