Gold Keeps Its Hold on India | Value Research Despite some numerical chimera that point to the contrary, Indians' rekindled love of gold shows no signs of becoming weaker...
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Gold Keeps Its Hold on India

Despite some numerical chimera that point to the contrary, Indians' rekindled love of gold shows no signs of becoming weaker...

It's become a pattern now. For some reason--a government action or international prices or a combination--gold imports fall and one reads news about how this will be a relief to economy. And then promptly comes the news that retail gold sales are up. The gold bug that infected our countrymen centuries ago is still very effective and nothing that the government can throw at it seems to calm it down.

Over the last month, sharply falling prices first saw a reduction in the retail sales of gold, but as soon as there was an upwards move in the prices last week, gold retailers reported a sharp uptick in sales. Apparently, everyone was just waiting for prices to fall before buying yet more gold. The strange thing is that there was a lot of talk about how the government has been raising the import duty on gold in order to curb consumption. Actually, it was nothing of the sort. Throughout the time when duties were being raised, the international price of gold was falling much, much faster than the rise in duties. So the hike in duty rates had probably more to do with preserving revenues rather than curbing consumption.

In any case, the behaviour of Indian gold consumers seems immune to the the normal law of price and demand or investor behaviour. Basically, people believe very strongly that the price of gold will go on rising sharply and that any fall is temporary and a precursor to a buying opportunity. Unfortunately for them, there are strong signs that this is not true. The shape and nature of the entire gold price cycle makes it clear that it is a side-effect of the huge liquidity glut over the last few years. This hasn't changed the fact that gold is intrinsically useless, doesn't earn anything and does not submit to any objective way of valuing it.

Committing large parts of one's savings doesn't make sense, no matter how much it conforms to habit and custom. This is one piece of official government advice that investors should heed: don't buy gold.




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