I disagree. Gold is a paper weight to the average person.
Like everything else under the sun, the response to this is "It Depends".
Out here Gold has value because the women folk cannot do without it. If our women one fine day simply threw away their golden ornaments, i believe the world price would crash so drastically, it would beggar anyone still on the gold standard. I have read statements from bankers and traders which put the estimated quantity of privately held Gold in India (majority of which is in form of jewellery) in excess of 18K Tonnes.
That figure seems too conservative if we take the 2011 total of total imports of the precious metal into this country, 997 tonnes. Due to measures introduced by the government (some would say re-introduced) the expected figure for this year is expected to peak at 500-550 tonnes. The reason the government wants to rein in this import, is that this is adding to the current account deficit. Till a couple years back as part of the mid 90s liberalization wave, the import duty on Gold for individuals carrying it with them was relaxed to the extent that one could bring back into India upto 5 Kilograms of Gold and pay nominal duty on it. Prior to that, Gold import duty used to be much higher (which lead to the rise of various Mafia types which made their money and name smuggling gold into India). Now today the duty is stiffer and the quantities permitted per person are down.
The thing is, all of this is like a band-aid on a decapitation. Culturally we are geared to see this metal as the only safe-bet. When a child is born, the parents start salting gold away. Every festival or major occasion in your life, you had better be buying your woman some bangles/pendant/whatever or something. It forms the most common SIP (even if the person is not thinking in terms of SIP). A small time farmer, with an acre or two his name, when he sells his crop, he buys a bangle for his wife/daughter with whatever is left over. If it is a wedding, you are either on the receiving or giving end of gold jewellery as a gift. Maybe on both ends. Certain communities have a bare minimum socially acceptable gold gift to the bride by the grooms's family and the bride's family standard in palce. Gold is all pervasive. Women spend hours on the phone talking about it, it keeps the telecom majors in play The publishers of jewellery catalogues do a brisk trade merely selling subscriptions to the catalogues with new designs.
It is an asset that people can mortgage in order to finance other assets or to start a business. One of the reasons finance against gold is so readily available is that once you mortgage the ornaments of the lady of the house, you are guaranteed to bust your behind and work to get them back ( and the financiers know this). Conversely it is the funding method of last resort. You would also encounter the phenomenon where a person would not raise finance at all (even for sure bets) because it would involve mortgaging his familial ornaments. Many parts of India it is seen as a pretty low down thing to have to do. Generally looked down upon and a sign of really having had made a mess of things and being totally down and out. Which is again why you would do your level best to pay off the loans and get your gold back. The finance company knows that the price of gold will move upwards so they are sitting pretty if you default on your payments.
So yeah, regardless of gold import reductions desired by the government and the economists etc, there is no way in hell that the appetite for this metal will go down in this part of the world, and it certainly is more than a paper weight. India produces like 1% of all the gold in the world and holds like 10% of the world's stock of Gold.
Oh and the government holding in Gold is at about 330 tonnes.