The Gold Knot.(Indian gold sales on the decline)

Indian brides-to-be hold heavy gold chokers against their slim throats and squeeze gold bangles onto their wrists at Tribhovandas Bhimji Zaveri, a three-story Delhi jeweler whose fountain and pink marble floors hint at India's passion for gold. Indians spend about $8 billion a year on the precious metal, which amounts to 2 percent of the nation's income and one fifth of all the gold sold worldwide. Since most Indian gold purchases go to adorn brides or to fill their dowries, wedding fashion in Mumbai moves the price of gold in London. So gold bulls, beware. At a time when global traders are rushing into the safe haven of gold, Indians are rushing out.

For years India has been passing laws to reform the oppressive tradition of gold dowries and its offshoot: a massive black market with retarding effects on the national economy. Now changing fashion is achieving what changing the law could not. Indian gold sales peaked in 1998 and dropped 36 percent in the first nine months of 2002, as an increasingly sophisticated middle class gives up gold wedding gifts in favor of mobile phones, Honda scooters, even Western M.B.A.s for the groom. Global gold traders last year commissioned a study of the Indian market, which found that urbanization, rising literacy, female emancipation and increasingly sound investment options all bode ill for gold. Coauthor Gary Mead, an analyst at Virtual Metals of London, says we may be seeing the death throes of India's ancient love affair with gold, "the last twitch of the dinosaur tail." If he's right, investors betting on a long bull run for the price of gold could find themselves in for a surprise.

Historically, Indians have had good reasons for their passion. Durable and relatively liquid, gold is convenient for rural investors, most of whom spend their days in the fields. Gold also makes sense in a fiscally conservative country with a high savings rate (more than 20 percent of GDP), an unpredictable currency and few other options. That is changing, slowly. Since the economic liberalization of the early '90s, public markets for stocks and bonds have taken hold. Their growth has been retarded by scandal, the Indian mutual-fund industry is still in its infancy and only 11 percent of workers have a retirement fund. But once the markets clean up their act, says Mead, they could attract a far greater share of Indian savings and place "another nail in gold's coffin."

Indians have plenty of reason to wean themselves off gold, too. Gold dowries have spawned a kind of underground economy, complete with undercurrents of violence and extortion, that distorts the Indian market. Hundreds of thousands of small-time gold jewelers effectively serve as what Mitsui Precious Metals analyst Andy Smith ...