Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Universal Credit Doomsday for Tax Credits Cash ISA Savers, Here's What to Do - 18th Nov 17
Gold Mining Stocks Fundamentals Q3 2017 - 17th Nov 17
The Social Security Inflation Lag Calendar - Partial Indexing - 17th Nov 17
Mystery of Inflation and Gold - 17th Nov 17
Stock Market Ready To Pull The Rug Out From Under You! - 17th Nov 17
Crude Oil – Gold Link in November 2017 - 17th Nov 17
Play Free Online Games and Save Money Free Virtual Online Games - 17th Nov 17
Stock Market Crash Omens & Predictions: Another Day Another Lie - 16th Nov 17
Deepening Crisis In Hyper-inflationary Venezuela and Zimbabwe - 16th Nov 17
Announcing Free Trader's Workshop: Battle-Tested Tools to Boost Your Trading Confidence - 16th Nov 17
Instructions to Stop a Dispossession Home Sale and How to Purchase Astutely at Abandonment Home - 16th Nov 17
Trump’s Asia Tour: From Old Conflicts to New Prospects - 16th Nov 17
Bonds And Stocks Will Crash Together In The Next Crisis (Meanwhile, Bond Yields Are Going Up) - 16th Nov 17
A Generational Reset That Will Redistribute Wealth to the Bottom 60% Is Near - 16th Nov 17
Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - 16th Nov 17
Gold’s Long-term Analogies - 16th Nov 17
Does Stripping Streets of ALL of their Trees Impact House Prices (Sheffield Example)? - 15th Nov 17
The Trump Administration’s IP Battle Against China - 15th Nov 17
5 Ways Bitcoin can Improve its Odds of Becoming the Future of Money - 15th Nov 17
These Headlines Say Gold is Building a Base for Something Big - 15th Nov 17
Protect Your Savings With Gold: ECB Propose End To Deposit Protection - 14th Nov 17
Gold on the Ledge, Trend Forecast - 14th Nov 17
The Unbearable Slowness Of Fourth Turnings - 14th Nov 17
Silver Sign’s Confirmation & More - 14th Nov 17
Could This Be The End for Tesla? - 14th Nov 17
Harry Dent’s Fourth Cycle: More Evidence of Stock Market Downturn - 14th Nov 17
Why Having Good Credit Is Important If You Want to Invest - 14th Nov 17
The Bitcoin Bubble Explained in 4 Charts - 13th Nov 17
How the US Has Secretly Subsidized China to Produce Eco-Unfriendly Solar Panels - 13th Nov 17
The Increasingly Unstable Middle East Must Be On Every Investor’s Radar - 13th Nov 17
Stock Market Critical Supports are Being Challenged - 13th Nov 17
The One Chart All Investors Should See Before 2018 - 13th Nov 17
Short-Term Stock Market Uncertainty Following Recent Rally, Will Stocks Continue Higher? - 13th Nov 17
Is Hillary Just the “Fall Guy” for the Intel Agencies and their Moneybags Bosses? - 12th Nov 17
Stock Market Correction Phase - 12th Nov 17
Finally, The Fall Of The House Of Saud - 12th Nov 17
Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - 11th Nov 17
E-franc, E-krona... E-volution? - 11th Nov 17
Gold Investment Stalled - 11th Nov 17
Smart Ways to Get Loans Online - 11th Nov 17
What Can Pot Teach Us About Economics and Government? - 10th Nov 17
Can Stocks and Bonds go Down at the Same Time? - 10th Nov 17
Gold Market 2017 Will We See a Replay of 2015 and 2016? - 10th Nov 17
Oil markets turn bullish with shift to backwardation - 10th Nov 17
The Strange Behavior of Gold Investors from Monday to Thursday - 10th Nov 17
Where to Start Your Cryptocurrency Company - 10th Nov 17

Market Oracle FREE Newsletter

Forex Trading Free Week

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

© 2005-2017 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

Catching a Falling Financial Knife