Consumer Behaviour Towards Sovereign Gold as an Inflation Hedge

Abstract

The current study explores consumer behaviour towards sovereign gold as a hedge against inflation. Sovereign gold bonds are sovereign securities of the government, denominated in grams of gold, with comparable interest rates but without the need for physical ownership. The study therefore introduces sovereign gold as an alternate financial investment against the traditional reliance on jewellery or gold coins. Primary data were collected from 300 respondents and the proposed relationships were examined using Partial Least Squares Structural Equation Modeling (PLS-SEM). The model measures the impact of financial literacy, perceived hedging effectiveness, inflation perception, and institutional trust on the decisions related to attitude and investment intention. The findings indicate that, attitude towards sovereign gold is the strongest driver towards investment intention. Investment decisions are influenced by institutional trust and perceived hedging effectiveness that shape the attitude of consumers. Financial literacy of consumers enhances the evaluation of sovereign gold as an inflation hedge, but the impact of inflation perception on the perceived hedging effectiveness is not significant. Investment decisions towards sovereign gold are primarily influenced by behavioural and institutional factors than macro-economic awareness. The study contributes to the literature by evidencing the drivers of consumer investment intention for government backed gold.