Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

How to "Democratize" Gold... and Give the Government a Black Eye

Commodities / Gold and Silver 2013 Nov 11, 2013 - 03:39 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: We all know that, so long as the Fed keeps the printing presses on, the risk of a worldwide currency crisis gets even higher.

Gold, of course, is the timeless hedge here - for all the reasons you and I know.

But are we truly prepared for a currency crisis?


Much of the gold in the United States is owned by big institutions: the Treasury, the Federal Reserve, and bullion banks. So, if a currency crisis hits, their 8,900-ton hoard won't do us a bit of good.

But there is one country whose "democratic" approach to gold ownership will allow its people to survive a currency crisis, literally, in fine style.

Not only that, but this country's people are giving their government a whopping black eye for its heavy-handed ways in the process.

Here's what's going on there...

India's Reserves Are Misleading

India's official, or government, gold reserve amounts to just 613 tons - merely the world's 11th largest stash.

But that's nowhere near the whole picture.

You see, of the estimated 167,550 tons of gold mined throughout all of history, some 34,170 tons are in India.

That's 20% of all the gold ever produced, in just one country.

And at today's prices, it's worth nearly $1.4 trillion.

Indians' cultural affinity for the yellow metal is world-famous.

Families gift it to the dowries of their marrying daughters.

Farmers buy every ounce they can with the profits from their annual harvests.

It's considered an auspicious gift for religious temples and festivals.

Maharashtra businessman Datta Phuge loves gold so much that he had 15 goldsmiths toil 16 hours a day for two weeks to make him a shirt made from it... at a cost of $250,000. His quarter-million-dollar ensemble makes the colorful, raucous costumes of Bollywood films look downright conservative...

At all levels of society and at all times, Indians just can't get enough gold.

So a funny thing happened when India found itself embroiled in a currency crisis...

What Currency Crisis?

From May 1 to Aug. 20, 2013, the Indian rupee lost a stomach-churning 20%, reaching all-time lows versus the U.S. dollar.

No one's felt those effects more than Mukesh Ambani, India's richest man.

He heads the parent company of the world's largest oil refineries, Reliance Industries. He owns perhaps the world's first personal skyscraper and billion-dollar private home, Antilia, in Mumbai.

But, poor Mukesh...

Thanks to the rupee's summer cliff dive, Ambani lost $5.6 billion in under four months. That's 24% of his former $23 billion fortune.

It's not because he made a bad investment. It's just that the value of his holdings in U.S. dollars was worth that much less.

What's more, foreign institutional investors with funds invested in large Indian public companies are sprinting for the exit and taking their funds out of India, further weighing on the value of those firms and the currency.

It's not pretty.

But, with so many Indians owning so much gold themselves, most will come through just fine.

In fact, they've seen their holdings increase - astronomically -in value.

Nobel literature Laureate V.S. Naipaul famously referred to his ancestral home, India, as the land of "a million mutinies." It's easy to see why.

And, in just carrying on as normal, the Indian people are actually making their government pay dearly for its own heavy-handedness.

India's "Million Mutineers" Fight Again

Record low rupee exchange rates of May through August 2013 pushed the gold price in India up almost 35% at the same time, to new all-time record highs.

In fact, Indians are buying so much gold (most of which has to be imported) that it's exacerbating the nation's current-account deficit, running at a record 4.8% for 2012.

And that's causing major headaches, which has led to desperate knee-jerk reactions.

Short of banning the sale of gold outright, the Indian government has tried nearly everything to slow gold purchases.

First they imposed import duties on gold, then hiked them three more times - all the way to 10% this year alone.

But that still wasn't enough to spoil the average Indian's appetite for gold.

Again on Sept. 17, the Indian Ministry of Finance raised gold jewelry import duties from 10% to 15%.

Now, the Reserve Bank of India wants to convince religious temples to sell some of their gold to banks.

One temple alone, the Tirumala Venkateswara Temple, has accumulated an estimated hoard of more than 1,100 tons, worth a mind-boggling $480 billion, over the past 2,300 years. Tirumala temple is only one of uncountable thousands.

They would then convert the jewelry into bullion, which could then be sold back into the market, partly relieving gold imports.
Reuters has even reported that the Reserve Bank of India (RBI) was planning to "ask banks to

offer to buy household gold and divert it to precious metal refiners in an effort to reduce India's current account deficit and improve the domestic supply of gold."

The RBI later said no such proposal was currently being considered, but as it is with all governments, a denial is often a ringing endorsement.

All that mismanagement has made Indians defiant in the face of rampant inflation. Smuggling gold cross-border into India has become a lot more prevalent.

In the first six months this year, Indians were responsible for 28% of worldwide consumer gold sales, up 48% year over year. And they certainly didn't let gold's spring selloff go to waste. In Q2, gold purchases were up 71% year over year.

For now, higher rupee gold prices and ever-increasing gold taxes may be weighing on demand. Imports have fallen considerably in the past few months.

Just don't bet on any sustained weakness. Owning gold has provided a strong hedge against a rapidly waning currency for many Indians.

The fall is typically a very robust gold-buying period. The all-important wedding, festival, and harvest seasons are quickly approaching.

Keep in mind, nearly two-thirds of gold in India is held in rural areas, where bank accounts are much less accessible. And with heavy monsoons this year, bumper crops are likely to support strong buying from the country's 200 million farmers.

Perfect Security, on Your Dressing Table

With the collapse of the rupee, it's been both wise and prudent on the part of Indians to own gold. With a central bank hell bent on debasing its fiat currency, like nearly every other central bank today, owning gold has helped Indians hedge rupee losses.

We can't be sure if Mukesh Ambani has any gold shirts hidden away in that skyscraper of his.

But we do know Indians as a whole own lots of gold in the form of jewelry and ingots. At 31,000 tons, my guess is there's more gold in India than anywhere else.

To 1.2 billion people, gold represents savings and security.

I believe at some point in the next few years, gold will eventually re-claim its role as money.

That will cause major nations to jockey for position in any new world monetary order.

And thanks to their "democratic" gold ownership, odds are good that Indians will play a significant role.

Source :http://moneymorning.com/2013/11/11/democratize-gold-and-give-the-government-a-black-eye/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014