Jan 29

Counterview-People’s Love for Gold

On 27th November 2012, an article was published in the business daily Mint of HT Media Ltd. comparing people of India and United States of America on the basis of their love for the yellow metal. Here is the link to the article, which is also available on the website of the newspaper http://www.livemint.com.

The article compared the legislation of the two nations which controlled the private holding of gold by their respective citizens. The article pin-pointedly describes, how both the countries, at different points of time, enacted the legislation and how the citizens of each country dealt with the similar situations. It has been very well and factually compared that U.S. legislation worked effectively in-line with the motive, whereas, Indian Act didn’t proved to be that much fruitful.

The Charismatic Gold

There is no doubt about continuing obsession of Indian people for yellow metal and because of that only, the country has remained the largest consumer as well as the largest importer of the gold for many years. But this obsession has made the country net importer in the global trade domain and has also led towards widening current account deficit (CAD) at alarming levels. And this is the only concern that has compelled the writer of the article to compare the characters of the citizens of the two countries.

In our view, where result of this character examination of the citizens on the particular subject-matter is very true; it presents only the half-truth. And in order to understand the reasons behind this obsession and provide an effective solution to keep country’s interest supreme, we are required to explore and take this matter one step ahead.

Solution lies in the problem itself…

As per our opinion, here are the few points that illustrate this obsession as well as indicate the solution to the problem:

  1. In the ancient global trade regime, gold has been widely accepted as standard and medium of monetary exchange. Not only Indian but many other civilizations also have accepted the gold’s standard monetary value.
  2.  This standard of gold has not even been diluted, forget about being challenged, in the Fiat currency regime. Let’s have a tour to the historical monetary systems:

    While using a varied range of commodities for monetary exchange world accepted silver and gold as standard for different coins and bank notes during the year 1750-1870. When this era experienced crisis for silver currency and bank notes world moved towards gold exchange standard in 1870 which lasted till 1914, outbreak of the World War I.

    During the two World Wars for a brief stint, world moved to floating currency exchange regime which was followed by the prolonged great depression and ended with the Bretton Woods Agreement in 1944. With this agreement world was again back to the gold standard. In 1971 world entered in the era of fiat currency and abandoned the gold standard.

    Now after almost 30 years we are again witnessing the sovereign credit defaults, the illogical money printing spree and amassing gold deposits by central banks.

    Here comes the Big Q??? Are we heading towards gold backed standards again?

    One can always debate the issue, but cannot ignore the gold. Can you?

  3. It has been time and again proven that among all asset classes only the yellow metal effectively provide hedge against the inflation, which is the mother of all evil.Not only hedging effectively but gold has also surpassed any other asset class by providing more than 600% return in the last 10 years time-span.
  4. Last but not the least, where other countries have successfully provided the alternatives to the physical gold holding in form of ETFs, Gold Funds, Gold Index and other market linked alternatives, in our country these alternatives are in their nascent stage.

Neither the Government nor the regulators have made any sincere attempt to educate the investors about these alternatives and their advantages. Rather they have indulged in draconian measures like banning the imports or hiking the duties.

How can you depose people from owning, what they consider is the respite to them in these turbulent times, when your central bank itself is continuously cornering on.

Cure the disease, not the symptoms

Considering these reasons it is clear that governance is the problem which has landed the country in this mess; not the citizens of India. They are only trying to opt for the best available recourse through which the value of their holdings can remain intact.

Howsoever, one may agree with the problem, but cannot agree with the last line of the article:
Perhaps India is where it is today because Indians back-stabbed Desai’s Gold Control Act, 1968.” Rather we think, it is the people those are back-stabbed by the regulator and the governments when they turned blind-eye towards the crooks when they snatched the hard-earned savings of the people through ponzi schemes.