India’s Gold Mania

Less than 1% of the world’s gold is mined in India. The rest comes from somewhere else. Still, India can’t get enough. It is the largest consumer of gold in the world, buying nearly a third of production in recent years. Some estimates say that 10% of all gold is held in India.

Indians save roughly 30% of their income, as opposed Americans, who save 5%. Plus, Indians are getting richer all the time. Once a very poor country, the rich and middle classes now outnumber the poor in this nation of 1.2 billion. The country has the sixth-largest economy in the world.

If people are left alone, high gold demand going forward is a lock.

Yet India’s policymakers are disturbed. Yellow metal purchases have widened the country’s current account deficit to 5.4% of GDP.

The Reserve Bank of India (RBI) has produced a report indicating “a need to moderate gold import, as the insatiable appetite for the yellow metal could jeopardize economic stability,” reports BullionStreet.com.

So the Indian government and its central bank are trying to get people to buy other financial products. “There is a need for banks to introduce new gold-backed financial products that may reduce or postpone the demand for gold imports,” the RBI report said.

The central banking wonks are thinking that if the Indian public can be made aware of financial paper instruments such as gold accumulation plans, gold pensions, and gold-linked accounts, it will drop its obsession with the barbarous relic.

A leading Indian trade body said country’s gold imports could fall to just 550 tonnes next year, little more than half of the peak of 967 tonnes in 2011.

Well, good luck with that. The people of India have cultural, historical, and traditional reasons to buy gold. They consider it the most valuable asset there is. Indians want to own gold like Americans want to own houses.

Ganesh Rathnam related a story that explains India’s gold obsession. When his father, a pediatric surgeon, wanted to buy land to build a new clinic, he mortgaged his wife’s jewelry to raise the purchase money. “Similarly, millions of people in India have capitalized their businesses or farms, or secured their basic necessities after severe business reversals, by pledging their gold jewelry,” he writes.

Last year, 60 Minutes ran a segment, “India’s Love Affair With Gold.” Correspondent Byron Pitts was stunned that the Indian people consider gold purchases as savings. Indians do not believe that they are spending when they buy gold, but, instead, that they are putting their money in a savings account. Oftentimes, a savings account that is worn around the neck or wrist.

There are 22 official languages in India, so there are 22 ways to say gold. And nothing says gold in India like a wedding. Half the country’s gold purchases are for wedding jewelry. It is said in India, “If there is no gold, there will be no wedding.” Gold must be widely owned, because there are 10 million weddings a year. Some are extravagant affairs that last for days on end.

Parents start accumulating gold for their daughter’s wedding day as soon as she is born. This gold represents some financial security that the bride brings to the union. It also gives the bride some economic status in the relationship. And while it provides security, gold is hardly ever sold, but instead passed on for generations. But it can be mortgaged if needed.

Gold is a symbol of purity and is considered sacred, but also signals prosperity. Jewelry does the talking and gold speaks loud and clear. Not for vanity’s sake, however, as gold is considered honorable. You can’t have a family without gold. The yellow metal is a way of life.

A gold analyst told Pitts that it’s impossible to explain to an Indian that gold might go down in price. Indian society has been around a few thousand years. People learn a thing or two in that time. First, save money for the unexpected. Second, don’t trust banks. And third, don’t trust the government’s paper money. They’re not interested in mutual funds and other financial products.

Even the poorest people in India buy gold, saving a little each week to buy a gram at a time.

“Gold has a rich tradition in the Hindu epics, the Ramayana and the Mahabharata,” writes Rathnam. “It was associated with the pomp and splendor of the gods and kings who appear in these mythological stories.”

He explains that silver coins were widely used in India during the reign of the Mauryas circa 250 B.C., and the first gold coins were issued widely during the Gupta dynasty around A.D. 250. India has been a collection of kingdoms and fiefdoms often at odds. Gold was easily hidden, “enabling ordinary citizens to avoid being looted by marauding armies,” Rathnam writes. The kings changed, as did the coins, and thus gold became the preferred medium of exchange and store of wealth.

After India’s foreign reserves were decimated by its war with China, the government instituted the Gold Control Act of 1962, which forbade private ownership of gold bullion and forced all bullion to be turned into jewelry.

In the 1970s, tax rates reached 95%, and the Indian currency, the rupee, plunged in value. Indians took to not only hiding assets from the taxman, but also trying to survive inflation. Gold and real estate were the chosen vehicles. Rathnam also points out that bank deposit insurance in India is the equivalent of just over $2,000, making bank deposits a risky asset.

But finance minister Chidambaram Palaniappan doesn’t care about tradition or prudence. He sees gold purchases as consumption that has contributed $64 billion to the country’s widening current account deficit.

While the average Indian loves gold, the country’s bureaucrats do not. The numbers tell the story. The Indian government owns only 360 metric tons, while private gold holdings are estimated to be 15,000 metric tons. It is, indeed, the people’s money.

An Indian gold expert told 60 Minutes’ Pitts, “If India sneezes, the gold industry will catch a cold.”

The government is trying to make it sneeze, but the people are wise. Thousands of years of tradition will likely keep the gold market healthy, no matter how much the politicians hate it.

Sincerely,
Doug French

Doug French

Written By Doug French

Douglas French is a Senior Editor for Agora Financial. He received his master's degree under the direction of Murray N. Rothbard at the University of Nevada, Las Vegas, after many years in the business of banking. He is the author of two books, Early Speculative Bubbles & Increases in the Money Supply, the first major empirical study of the relationship between early bubbles and the money supply, and Walk Away, a monograph assessing the philosophy and morality of strategic default. He is founder and editor of LibertyWatch magazine.

  • Open Windows of Opportunity With Jim Rickards

    Open Windows of Opportunity With Jim Rickards

    James Rickards

    by James Rickards
    On Nov 14, 2014

    Are you a deflationist? Or an inflationist? No matter which way you believe the wind will blow, the truth is this: it’s up in the air. But, as Jim Rickards explains, there are things you can do to cover your assets, no matter which one wins the tug-of-war. Read on…

  • Smart Meters Won’t Save You a Penny (But They Can Spy On You and Fry Your Brain)

    Smart Meters Won’t Save You a Penny (But They Can Spy On You and Fry Your Brain)

    Chris Campbell

    by Chris Campbell
    On Nov 6, 2014

    Smart meters are supposed to be our saving grace. Reduce pollution… reduce blackouts… and keep you and your family safe. The truth, though, is the exact opposite. What’s the true agenda behind smart meters? And why are you being lied to? Read on…

  • Scary Confessions of a Silver Bug

    Scary Confessions of a Silver Bug

    Chris Campbell

    by Chris Campbell
    On Oct 31, 2014

    You hear a lot about gold these days. But what about silver? Chris Campbell speaks out about the moon metal with one shocking confession. Read on…

  • Three Safe and Reliable Ways to Play the Market

    Three Safe and Reliable Ways to Play the Market

    Chris Campbell

    by Chris Campbell
    On Oct 30, 2014

    Markets have you spooked? You’re not the only one. In today’s Laissez Faire Today, you’ll hear from three market experts on how to stay safe, no matter what direction the overall market heads. Read on…

  • Why Sound Investors Choose Gold and... Ebola?

    Why Sound Investors Choose Gold and… Ebola?

    Chris Campbell

    by Chris Campbell
    On Oct 29, 2014

    Savvy investors: Two experts weigh in on why having your own personal gold standard… and betting that Ebola will get worse… could be your best investment decisions of 2014. Read on…

  • EightUnusual

    8 Unusual Rules for Investing

    Chris Mayer

    by Chris Mayer
    On Nov 4, 2014

    Where do great investors come from?I’m not sure what the hurdle rate for greatness is, but Guy Spier has put up impressive results. His Aquamarine Fund has returned 463% since inception in 1997, versus just 167% for the S&P 500 (a broad proxy for the market). Put another way, $1 million invested at inception is […]

     

  • Washington’s Secret Slave Labor Ring: Coming to a Neighborhood Near You

    Washington’s Secret Slave Labor Ring: Coming to a Neighborhood Near You

    Chris Campbell

    by Chris Campbell
    On Sep 26, 2014

    America has about 4% of the world’s population, yet houses 25% of the world’s incarcerated. What’s going on here? Chris Campbell digs deep into the industry to figure out the truth. While many blame the private prison industry, the real culprit, says Chris, begins right outside your door. Read on…

  • Bitcoin: Buy Now or Forever Hold Your Peace

    Bitcoin: Buy Now or Forever Hold Your Peace

    Chris Campbell

    by Chris Campbell
    On Sep 17, 2014

    Bitcoin has been pretty quiet lately. But that doesn’t mean big things aren’t taking place behind-the-scenes for the digital currency. In today’s Laissez Faire Today, Chris Campbell pulls back the curtain and shows you how Bitcoin is quietly slipping into the mainstream. He also shows you why now could be the time to buy now, or forever hold your peace. Read on…

  • The Only Way to Get Rich: A Zen Proverb

    The Only Way to Get Rich: A Zen Proverb

    Chris Campbell

    by Chris Campbell
    On Sep 10, 2014

    Want to get rich? Don’t listen to financial “gurus,” says Chris Campbell. In today’s Laissez Faire Today, Chris shares a Zen proverb and shows how understanding it is the only real way to get rich (and live a rich life). Read on…

  • HappyFamily

    One Free Website to Keep Your Family Safe

    Chris Campbell

    by Chris Campbell
    On Sep 9, 2014

    Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” In today’s Laissez Faire Today, you’ll learn about one FREE website that has the potential to not only keep your family safe – but also open your eyes to what’s happening in your own neighborhood. Chris Campbell has all the details. Read on…

  • 01_Snoopy

    Snoopy Goes to Hollywood

    Chris Mayer

    by Chris Mayer
    On Oct 6, 2014

    Next year is the 65th anniversary of the Peanuts comic strip. And Charlie Brown, Snoopy, Lucy and the rest of the gang will appear in their first full-length feature film in 35 years.One small company has the license to the Peanuts brand. The cash flow due to this company could be enormous. In late October, […]

     

  • Youre_Incredible

    Use “Power Gaps” to Build Your Own Empire

    Chris Campbell

    by Chris Campbell
    On Sep 8, 2014

    All over the world, power is dying. The dictators and tyrants of the world are no longer able to wield it like they once used to. And they’re losing it to the “little guy.” Chris Campbell shows you how to be the king of your castle by taking advantage of this fact. Today, you’ll learn how to grab “power gaps” in the market and channel them into your product idea or project. Read on…

  • Free Markets and Malaysian Fireflies

    Free Markets and Malaysian Fireflies

    Chris Campbell

    by Chris Campbell
    On Sep 3, 2014

    The fireflies along the tidal rivers of Malaysia show "feats of synchrony that occur spontaneously, almost as if nature has an eerie yearning for order." Chris Campbell tells you where else this might occur in the world. Also, new technology may revolutionize the agriculture industry and what we think of as a farm.

  • Smoking Pot in the Governor’s Mansion

    Smoking Pot in the Governor’s Mansion

    Chris Campbell

    by Chris Campbell
    On Sep 2, 2014

    Jeff Davis is running for Governor in Hawaii and has an interesting campaign strategy. Also, what motivates hackers is revealed and the findings might surprise you. Finally, Ferguson is discussed in a new light. Chris Campbell has more...

  • 4 Ways the Government Is Set to Take Your Money

    4 Ways the Government Is Set to Take Your Money

    Byron King

    by Byron King
    On Aug 21, 2014

    The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...

  • AddTheseModern

    Add These Modern-Day “Treasure Maps” to Your Portfolio

    Chris Mayer

    by Chris Mayer
    On Sep 4, 2014

    Who can forget Robert Louis Stevenson’s Treasure Island? That map, marked with an “x,” is the stuff of high adventure.There is a modern-day equivalent of a treasure map, and it is just as coveted by those who seek reservoirs of oil and gas. It’s called seismic data.What are seismic data? In essence, they’re collected from […]

     

  • Time to Take the Plunge in Juniors

    Time to Take the Plunge in Juniors

    Doug French

    by Doug French
    On Aug 19, 2014

    When’s the best time to invest in something? When everyone else is trying to get their money out of it. It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay.

  • Central Planning by Central Bankers

    Central Planning by Central Bankers

    Gary North

    by Gary North
    On Aug 15, 2014

    In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]

  • The Great Gold Swindle

    The Great Gold Swindle

    Sean Brodrick

    by Sean Brodrick
    On Aug 13, 2014

    Greetings from Maine! Right now, I’m writing from within foghorn distance of the sea. And this gives me an opportunity to tell you a down east tale that should serve as a warning to every investor: Maine’s Great Gold Swindle.I’m not talking about central banks, or manipulation of today’s markets. I’m talking about something from […]

  • 6 Major Flaws in the Fed’s Economic Mode

    6 Major Flaws in the Fed’s Economic Mode

    James Rickards

    by James Rickards
    On Aug 12, 2014

    The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]

  • TheRiseFallBitcoin

    The Rise, Fall, and Rise of Bitcoin

    Dominic Frisby

    by Dominic Frisby
    On Aug 4, 2014

    I bet you use different kinds of money all the time, sometimes without even realizing it.In various online accounts, I currently have: some dollars, some pounds, and some euros. I have some air miles from two different credit card companies. I have some supermarket rewards points from three different companies. And I also have some […]

     

  • How to Shield Yourself from the Next U.S. Debt Crisis

    How to Shield Yourself from the Next U.S. Debt Crisis

    Matt Insley

    by Matt Insley
    On Aug 7, 2014

    Let’s head back in time…In 2004, a mere decade ago, the US national debt rang the register at $7.4 trillion. That represents “debt per citizen” of over $25,000. You, me, your neighbor, your 4-yr old grandson, you name it and they’re portion of the U.S. debt is $25k.But flash forward to today and you’ll see […]

  • Linking The Dollar To Gold: The Recipe for an American Economic Boom: Part 1

    Linking The Dollar To Gold: The Recipe for an American Economic Boom

    Peter Ferrara

    by Peter Ferrara
    On Aug 4, 2014

    Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]

  • Don’t Ignore These 3 Big Sells

    Don’t Ignore These 3 Big Sells

    Greg Guenthner

    by Greg Guenthner
    On Aug 1, 2014

    Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]

  • The Bitcoin Dinner Solution

    The Bitcoin Dinner Solution

    Jeffrey Tucker

    by Jeffrey Tucker
    On Jul 29, 2014

    A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]

  • shutterstock_164871407

    Middle East Oil Wars and What They Mean for Your Portfolio

    Byron King

    by Byron King
    On Jul 2, 2014

    I’m sure you’ve seen the news. As if recent, past U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade.Radical Islamist armies are marching toward Baghdad, slicing through Iraqi government troops […]

     

  • The Dollar’s 70-Year Dominance Is Coming to an End

    The Dollar’s 70-Year Dominance Is Coming to an End

    Liam Halligan

    by Liam Halligan
    On Jul 22, 2014

    In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]

  • The Bitcoin Billion-Dollar Discount

    The Bitcoin Billion-Dollar Discount

    Dominic Frisby

    by Dominic Frisby
    On Jul 17, 2014

    When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]

  • The Only Prescription for a Real Economic Recovery

    The Only Prescription for a Real Economic Recovery

    Dan Amoss

    by Dan Amoss
    On Jul 15, 2014

    In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]

  • The Dollar Will Be King Longer Than You Think

    The Dollar Will Be King Longer Than You Think

    Matt Insley

    by Matt Insley
    On Jul 3, 2014

    Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]

  • HundredsSilentKillers

    Revealed: Hundreds of “Silent Killers” in Your Kitchen

    Brad Lemley

    by Brad Lemley
    On Jun 3, 2014

    In 1995, American agriculture underwent a profound, dangerous change.In that year, Monsanto and other companies pushed through approval for a handful of genetically modified (GM) organisms. These included canola oil tweaked to improve its flavor, potatoes modified to resist pesticide dousing, and tomatoes gene-spliced to delay ripening.“About half of all the crops planted on American […]

     

  • The Real Forgotten Man

    The Real Forgotten Man

    Chris Mayer

    by Chris Mayer
    On Jul 2, 2014

    Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]

  • The Federal Reserve is a Law Unto Itself

    The Federal Reserve is a Law Unto Itself

    Vern Gowdie

    by Vern Gowdie
    On Jul 1, 2014

    “As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]