Alternative investment behavior of households during crises: The effects of the COVID-19 shock on gold purchases in India

Gold plays an important role as a hedge and a safe haven for investors. This paper presents new evidence on gold's role for Indian households during the COVID-19 pandemic. By using panel and cross-sectional household surveys, we investigate the propensity of households to purchase, pledge or sell gold based on the district-level heterogeneity in COVID cases and economic impact proxied by night-time light activity. We find higher gold purchases of households in the more affected districts compared to other districts during the crisis. Importantly, households that are more directly affected by the shock are less likely to purchase gold and more likely to pledge or sell gold. The purchases are likely driven by an increased risk perception of households in response to an unexpected shock — a novel perspective of gold's safe haven property. We also find that relatively poor households that receive government transfers or have less access to formal credit display stronger gold purchasing behavior.