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India's Appetite For Gold Not Dampened by High Prices

Over the past 12 months, gold prices have increased by nearly 50 percent. But the high prices have not dampened India's appetite for the precious metal. Anjana Pasricha reports from New Delhi on India's cultural affinity with gold.

After watching the steady rise in gold prices over the past 12 months, 52-year-old Kanu Chadha has radically raised her budget for the jewelry she wants to give her daughter when she gets married next February.

Gold prices exceeded $865 an ounce last month. But that does not deter Kanu Chadha from continuing with her purchases of stone-studded bangles, necklaces and earrings set in gold.

"There is no other way out. Jewelry is part of an Indian wedding, so you have to do it," she said. "So I am going on purchasing it despite the rise in price. You may cut an item here or there, or make the weight a little less, but you still carry on with it. That is how the Indian psyche goes."

India's desire for gold dates back centuries. Parents and in-laws traditionally give gold and gold-based jewelry as wedding gifts to the bride. It is considered a woman's personal wealth. Indians also purchase gold during festivals, as a gift to new-born babies, or as a safe investment.

Ajay Mitra, head of the World Gold Council in Mumbai, says a recent study among consumers showed that runaway prices are not going to stop Indians from buying the yellow metal.

"Consumers across seven cities in India came out very strongly that the intrinsic value of gold continues to command a very high preference in their minds, and they would continue to buy gold irrespective of what the absolute price is as I said, it is intrinsic, it is auspicious, it is part of our genetic upbringing," said Mitra.

The love of gold cuts across economic classes. Mitra says the study covered families with incomes ranging from $200 to $2,000 a month. All of them wanted to invest some of their savings in the metal.

Gold is also bought heavily in rural areas, where savings are often converted into the precious metal partly because the banking system is not well developed. In fact, most village marketplaces include a goldsmiths shop.

Indeed, jewelers are unfazed by the rise in prices. They say the recent financial crisis in the world will only reaffirm the faith that Indians put in gold. Many middle class Indians, who had put their money in stocks, find their stock investments have tumbled, but their gold purchases now command a higher value.

India is the world's biggest gold consumer, importing about 700 tonnes to 800 tons a year.