Tuesday, October 15, 2013

Happy Dassera - Why we Indians buy Gold during Dassera / Diwali period?

Indian fetish for gold is well known. The whole of the country goes to the goldsmith and buys their gold during Dassera/Diwali period leading to a huge buying spree. A lot of people ask me how the custom of buying gold during the Dassera (leaves of specific tree that are deemed to be gold) / Diwali period (actual buying of gold) came into being. Then they read wikipedia and various stories about Kuber (the God's treasurer) and other related stories. Here is the real(!) explanation.

Actually the story starts with Ramayana. Ravana, the demon king, had accumulated huge pile of gold and it was kept in Sri Lanka. Ravana being conqueror of three worlds had quite a stock pile at this place. The Ramayana has vivid description of gold-palaces and gold plated public places in Lanka. Nonetheless, he was all powerful so the stock pile was out of bounds for accumulation for the rest of the world.

The sequence of events unfolded such that Rama ended up defeating Ravana killing him on the day of Dassera. Naturally the assets of Ravana were accessible to the investors after that point. Therefore, the price of gold dropped drastically leading to a buying frenzy fuelled by suppressed demand.

The South which got wind of the end of Ravana started trading in gold contracts using tree leaves. The North got the information about demise of Ravana when Rama arrived in his plane (with of course quite a bit of gold) by Diwali. (No bloomberg in those times!)

Today, the situation is quite the reverse, gold prices actually go up during the festive times and therefore it makes no sense to buy gold on Dassera / Diwali period. Rather buy it a month or two before.


To me this story seems more plausible than all the mythical stories we have been fed. But then I am a rationalist.