India has been famously described as the perennial sink of the precious metals (Stanely Jevons). What determines the virtually insatiable appetite of India for gold and how does one mobilise its gold for productive purposes? I.G. Patel, in his early career at IMF engaged with the gold question and wrote a pioneering paper on ‘India’s Elasticity of Demand for Gold’ (August 21, 1950). It estimated the responsiveness of India’s demand for gold to changes in its relative price by attempting to correlate the net flow of gold from (or to) private hoardings during the period 1925 to 1942.

He does this with two variables viz. relative price of gold and the consumption of refined sugar as a proxy for national income. The results suggested that the demand for gold was highly responsive to changes in its relative price. Patel argued that, historically, price has been a more important explanatory variable than income. However, he did not publish the paper because he was aware that the methodology used had a tendency to overestimate price-effect and underestimate the income-effect.