Wednesday, November 25, 2009

While the West Foolishly Debates Gold's "Intrinsic" Value, Indian Citizens are Laughing all the Way to The Bank

Even after the financial crisis nearly wiped off the world's fiat currency based banking system, western commentators still find themselves vigorously debating whether gold has "any intrinsic" value. One would have thought that the financial crisis would have put this issue to bed permanently. Not so. So entrenched is the faith in fiat currency that folks in the west would rather own paper dollars (backed by nothing but the Fed's determination to print even more money), than buy gold, a commodity that has been held throughout history as a store of value.
Of course this western apathy for gold is not shared by the ~1 billion people of India who have been investing in gold for centuries. So great is gold's appeal to ordinary Indians, that The Times of India has taken to labeling India as "Gold's Own Country". In a recent article they point out that:
The glitter of gold has attracted Indians for centuries for a variety of reasons - ranging from a medium of transaction to protecting wealth, securing the future and as jewellery. Gold is valued in India as a savings and investment vehicle and is the second most preferred investment behind bank deposits.
It is estimated that about 15,000 tonnes of gold is privately held in India [by its citizens], more than twenty-five times as large as the official hoard of 558 tonnes after the RBI's [Indian Central Bank] recent purchase of 200 tonnes from the International Monetary Fund (IMF).
In one year, gold has appreciated by 53%, from $742 to $1,134 an ounce in international markets. Considering this jump, the value of the country's privately held gold reserve, the highest in the world, has jumped from $357 bn to $547 bn, posting a rise of $190 bn. "Over a period of ten years, privately held gold reserves have increased significantly in the country as consumers have bought more gold to preserve their wealth," says Dharmesh Sodha, director, World Gold Council- India.
"As gold offers safety and better liquidity, people prefer to park their savings in the yellow metal," said GR Ananthapadmanaban of GRT Thanga Maligai, a Chennai-based jewellery firm. Whether it's for security, returns or other purposes, what's clear is that India's hunger for gold remains insatiable.
So folks, given Gold's ringing endorsement by ~1 billion now much wealthier Indians, it is time to put the "intrinsic value" debate firmly to bed.

No comments: