Reserve Bank of India, Deputy Governor K C Chakrabarty. is a little miffed about India’s current account deficit and the value of the currency. He blames gold and India’s ancient traditions for his country’s woes.
‘Ninety percent of the gold demand is jewellery or to offer to God. Both have to stop. Wearing gold as an ornament was a culture when you were a rich society, when you were contributing to 30% of the GDP of the world. Today, we have become a poor country, we need to change our culture.’
Mr Chakrabarty goes on to say that gold is a speculative and unproductive investment and its price will fall sharply when the speculators exit the market. We would guess most Indians will respond to the advice with a yawn, if not a laugh.
It is this type of Orwellian gibberish you come to expect from central bankers. The producers of paper money always rail against gold’s ability to shine a light on their ineptitude.
In one respect he’s right though. Gold as an investment is unproductive. But as a long term store of value it is unrivalled. And Indians, long weary of inflation, corruption and economic mismanagement, know this only too well. Throw in the natural volatility of an economy highly dependent on agriculture, and the store of wealth thing tends to become ingrained.
Is putting your savings into US government debt, at less than 1.5% for ten years, any more productive? A large chunk of the US budget now goes towards welfare. It is prudent to give your savings to a government who then facilities the consumption of those savings? All you get in return is a piece of paper promising future repayment, the real value of which is unknown.
So we would suggest that by storing their savings in gold, the Indians are actually quite savvy. In the absence of a better alternative (as in one with a better risk/reward profile) why not focus on the preservation of your wealth and bypass the ‘system’.
for The Daily Reckoning Australia
From the Archives…
China’s Coming Assault on the Western Financial System
20-07-2012 – Greg Canavan
Has Bernanke and the Fed Discovered a New Invention in Wealth Creation?
19-07-2012 – Greg Canavan
Why You Should Watch Your Blind Spot For An Oil War
18-07-2012 – Dan Denning
Flexible Investing to Become a Relaxed Investor
17-07-2012 – Murray Dawes
China’s GDP Figures… Lies… Damned Lies?
16-07-2012 – Dan Denning