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  • rono December 2012
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Dematerialized gold in India—it's about the rupee, not gold

beebee
edited December 2012 in Off-Topic
A country that loves its gold hurts the value of its paper currency...here's how:

"In India, the high price of gold fails to make a significant dent in massive consumer demand, where gold is used as savings and doubles as wedding jewelry. This leads to massive imports of gold, which causes a current account deficit for India, which weakens the currency, which then makes gold more attractive as an investment. In a normal economic cycle, rising prices would eventually kill demand, but in financial markets there is a positive feedback loop. Rising prices make the asset more attractive, leading to more buying and higher prices, until everyone is involved in the bubble and prices collapse. (I don't think Indian gold demand is a speculative bubble, but the effects of rising prices are the same because one component of demand is speculative.)"

dematerialized-gold-in-india

Comments

  • ronorono
    Hi bee,

    Thanks. This highlights the extent of breadth and depth of the demand for gold. In India you have a very strong cultural demand. Wedding jewelry/dowry, but girls are given gold on all occasions from birth. Historically, they kept this gold all their lives and it effectively served as their 'social security'. To a large degree, they still do. In China, it was not even legal to own gold bullion until a few years ago. Adding to this pent up demand, both economies have created 1000's of nouveau riche wanting bling. Around here we have our survivalists. I have only scanned the tv show Doomsday Preppers, but I'd suspect they all tout owning gold and silver. Gold demand also includes central bank purchases by various countries around the world. Part of that is for their own balance sheets, but some is to counterbalance their excessive holdings of greenbacks. How many greenbacks does OPEC wish to hold before they decide to start diversifying? How about China? Industrial uses are odd and also serve to highlight why gold and silver are 'precious' metals. Why do they use gold in electronics? It doesn't corrode. Silver has both antiseptic and distinfectant uses that are enormous. Every bandage have a silver lining? I digress.

    This is why I really don't worry about a fall in the POG. Way too many players looking for a buying opportunity somewhere. feh.

    peace,

    rono



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