Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
A Short Tale About the Grand Manipulation of Crude Oil Prices - 26th Nov 14
China Secret Gold Buying ... How Could It Happen? - 26th Nov 14
Gold Price Spikes to $1,467.50/oz on Computer Glitch? - 26th Nov 14
Gold - So Bad It's Good: Surviving 2014 - 26th Nov 14
TrueShopping.co.uk Real Customer Experience Review - Online Shopping Lessons - 26th Nov 14
Is There A New Global Consensus About Cheating Investors To Reboot Employment? - 26th Nov 14
EUR/USD – Currency Bulls Don’t Give Up - 26th Nov 14
Swiss Gold Referendum A Golden Opportunity for Switzerland - 25th Nov 14
Silver: What COT Analysis Tells Us - 25th Nov 14
Stock Market Big, Bold and Ugly - 25th Nov 14
U.S. Dollar Near Top? Gold and Silver Trading, Platinum Breakout Invalidation - 25th Nov 14
Buy Fear - Easily Pick Up Profits on Stock Market Dips - 25th Nov 14
The Islamic State Reshapes the Middle East - 25th Nov 14
Gold Price Forecast 2015 - 25th Nov 14
The Swiss Referendum On Gold: What’s Missing From The Debate - 25th Nov 14
Clash of Generations - Why Millennials Still Live at Home; Not Jobs, Student Debt, or Housing - 25th Nov 14
Stock Market Reminiscent of Pompeii - 25th Nov 14
Once Upon A Time There Were Philosopher Kings - 24th Nov 14
The 2014 Crude Oil Price Crash Explained - 24th Nov 14
China Stock Investing - Follow the Money! - 24th Nov 14
122 Tonnes of Gold Secretly Repatriated to Netherlands - 24th Nov 14
What Causes the U.S. Dollar to Move? - 24th Nov 14
Stock Market Indexes New Highs - Will Uptrend Extend Even Further? - 24th Nov 14
All Hail the King U.S. Dollar - Trend Forecast - 24th Nov 14
Where Is China Economy On The Map Exactly? - 24th Nov 14
Most of The World Economies Panic - Is The US Next? - 24th Nov 14
Stock Market Exhaustion Gap? - 24th Nov 14
Gold Golden Gains Come After The Pain - 24th Nov 14
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

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

© 2005-2014 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