*****Gold Appreciation To Create Tremendous Inflation In India*****

Gold-eagle explains why Indians love gold.

(emphasis mine) [my comment]

Why Indians Love Gold

From time immemorial Indians have been in love with Gold. The predominant Hindu population finds mention of gold as a commodity of immense value in their religious books. Some of these religious books like the "Vedas, Puranas, Upnishads" are believed to date back a few hundred thousand years. The revered "GITA" is believed to be a sermon by Lord Sri Krishna given more than 5000 years back. In most religious books there is mention of gold as a metal of immense value. Hindus believe that Gold is a metal of demi-Gods and monarchs.

From ancient times Gold (and gold jewelry) has enjoyed safe-heaven status. In India Gold continues to enjoy safe heaven status even today. Gold jewelry is worn by all women irrespective of their religious beliefs. A large number of Indian men also wear Gold jewelry as neck chains, bracelets, and rings (on fingers). Gold jewelry is popular among Indians for the following reasons.

1) Jewelry is worn for ornamental value on all social functions, festivals and celebrations.

2) At one point in time there was 97% income tax in India. This resulted in large scale tax evasion. Large population spread over a significant area and lack of adequate computerization are some other reasons for tax evasion. The tax reforms of the last several years have indeed reduced the level of evasion. Still a lot remains to be done. It is believed that there is a parallel economy running in the country. The cash component of the unaccounted wealth can not be kept in Banks (if kept in Banks it would have to be accounted). This unaccounted wealth can not be kept in safe deposit vaults as it has to be hidden from the tax authorities.
Gold jewelry is the most convenient option as it occupies very little space (so easy to hide) and does not have the risk of being damaged during storage.

3) The Indian rupee is not convertible on capital account. This means that it is illegal for an Indian (resident in India) to keep any foreign currency in his possession or in his portfolio. Foreign exchange regulation act (FERA) and conservation of foreign exchange and preservation of smuggling activities act (COFEPOSA) prescribe deterrent punishments for violators (including detention for long periods without bail or trial). It is also illegal to keep Gold in unworked form (pure gold). As a result, in the prevalent scenario,
Gold jewelry is the only way to protect against depreciation of Indian rupee against US$.

4) A large population in India lives in villages. A large number of very poor people do not have proper houses to live. These poor people have very little assets. Whatever little they have they must keep in their possession 24 hours a day (as they do not even have a house to keep their belongings). Gold jewelry worn on their self is the only option. When in crisis they mortgage it or sell it. Floods and drought force many people living in villages to flee to a safer place. It is easy to carry gold jewelry while fleeing in distress.

5) In the long term the Indian rupee price of Gold has been in an up-trend. Inflation has continuously, year after year, eroded the value of currency. Real estate has been the best bet. Gold jewelry has been the next best option. Despite the fact that $ price of Gold has been in a bear trend, Indians continue to believe that Gold is a hedge against inflation. The following is the Indian rupee Gold price chart from 1993 onwards. The downward price movement from 1996 has been for two reasons. Firstly, $ price of Gold has gone down by 25% in the same period. Secondly, the Indian Gold import regulations have been liberalized. Some benefits of liberalization have been passed on to the consumers in the form of lower rupee prices.

6) Due to import duty and other limitation on imports,
the price of Gold in India is always higher than the international price. Therefore, India continues to import Gold year after year.

Yearly Indian Gold imports

India as a country is heavily long gold

Based on India's yearly gold imports, there should be over 10,000 tons of gold circulating in India in the form of jewelry. These 10,000 tons of jewelry is worth about $381 billion at $1080/oz. This huge supply of gold jewelry acts as a second unofficial currency in India.

The appreciation of gold will create tremendous inflation in India!

When global gold prices soar, gold owners in India (nearly the entire population) are suddenly going to find themselves much richer. With their new found wealth and greatly increased purchasing power, they will be willing to pay a lot more for what they want (food, clothes, etc...). So rising gold prices are going to result in out of control inflation in India, with will lead to a surge of raw material imports (as is already happening in China).

Implications are staggering

Consider these two facts:

1) Both gold and the yuan are undervalued by over 40%.
2) China's population is 1.3 billion and India's population is 1.2 billion. Together, China and India make up 38.5 percent of the world's 6.5 billion people.

As the dollar collapses and gold/yuan appreciate, India's and China's enormous populations are going to start sucking up the world's raw goods (food, energy, metals) with their increased purchasing power.

This entry was posted in Background_Info, Currency_Collapse, Gold, India. Bookmark the permalink.

16 Responses to *****Gold Appreciation To Create Tremendous Inflation In India*****

  1. Anonymous says:

    Half of all U.S. children will get foodstamps:




  2. Anonymous says:

    OMG! I can't believe they can get away with this!:


  3. SumoSabe says:

    Ruh, Roh...

    watch gold and oil...

  4. Anoinmouse says:

    Gold just reached a new all-time high of 1100 USD per troy ounce.

  5. David says:

    Hmm, this blog gets better and better. The comment section however, appears to be breaking down.

    Eric, i have been reading this blog for 8 months now, and i really appreciate it. 8 months ago, the comment section was a place where sensible discussion took place, now, that discussion is drowned in nonsense. Please, close it to anonymous posters, if that doesn't work, close it to everyone except the few that you would like to comment on your blog.

    Eric, please don't be discouraged by the few idiots who don't like your blog and post evil comments. Know that there are other people, who read, like and need your blog as a source of information and a guide in this crisis.

    Thank you for all the work you have already done,

  6. David said...
    Hmm, this blog gets better and better. The comment section however, appears to be breaking down.



    Eric, i have been reading this blog for 8 months now, and i really appreciate it. 8 months ago, the comment section was a place where sensible discussion took place, now, that discussion is drowned in nonsense.

    I believe I have attracted one or two payed bashers. They are trying to undermine this blogs using the comment section by:

    1) Agressively disagreeing with everything I write ("I doubt that purchasing power will rise with the price of gold.", etc)
    2) Questioning and casting doubt on basic facts ("Is it really the case that a majority of the indian people own gold jewellery?", etc)
    3) Attacking my credibility ("I'm beginning to think I'm wasting my time here", etc)
    4) Insulting other commentors.
    5) Offending people using swear words and being nasty ("FU*KING", "EPIC FAIL!", etc...).
    6) Talking about aliens and other strange stuff (making it seem like weirdos read this blog)
    7) Drowning the discussion is in nonsense (lyrics, "Let's go and rescue Princess Toadstool", etc)
    8) Promoting the bullish propaganda about the dolllar ("Demand for dollar up!", "dollar just simply cant collapse." etc).

    I just went on a deleting binge and removed 36 of this article's 46 comments.


    Please, close it to anonymous posters, if that doesn't work, close it to everyone except the few that you would like to comment on your blog.

    Done. There will be no more anonymous posters.


    Thank you for all the work you have already done

    Your welcome.

  7. dashxdr says:

    Bravo Eric! Great move getting rid of the anonymous posting option.

    I think you're right about people that are paid to introduce chaos and noise.

  8. cert says:

    Eric, actually I'm a big fan of you and your blog. This was my first comment after six months of reading it daily. I find your analysis very valuable, but that doesn't mean I have to agree on anything you say. So calling me payed basher is epic fail. Besides my point was substantiated. I don't know the price of golden jewelry in India, but I checked prices here in Czech republic and it varies from 100% to 200% over spot. Guess what would happen if Indians decide to throw their hoarded jewelry on the market...

    Pavel, Prague

  9. roman says:

    i don't think eric is saying that you are a "paid bashers" or that no one is allowed to disagree with him. I'm sorry you don't see it, but that guy posting all that garbage was way over the line.

    Reread eric's post and you will see what the guidelines are.

    In fact, most, if not all, of the the blogsites I visit have similar Rules of engagement.

    Eric, you absolutely did the right thing. Thanks

    I want to get real information from the comments, pro or con, so maybe things will get back to that now

  10. Aaron Krowne says:


    I just want to let you know I really appreciate this blog. Even though some of your theses may be way "out there", that is where true insight comes from, so I keep it in my stable of regular reads.

  11. Numonic says:

    It's scary how gold $ silver moved so similar today. Look at the kitco charts. Their move was identical all day.

    P.S. If i knew signing up for a google account was this easy, i would have done it before to reply in Mike Norman's blog. I wanted to correct him on somethings.

  12. Numonic says:

    I meant to say gold & silver, not gold $ silver.

  13. Numonic says:

    wow now that i look at it, all week they have moved the same. They've probably been doing this for a while and I never noticed.

  14. dashxdr says:


    You are aware that the gold and silver markets are manipulated, right? Huge amounts of paper drown out the physical metal. JP Morgan (most likely) holds huge naked short positions in both metals.

    Around 1980 Volker said the main thing he regretted about the 70's was losing control of gold + silver.

    Aha! So the Fed learns its lesson. Manipulate gold and silver, always. To maintain the illusion that a fiat currency is valuable.

    We don't need to keep the dollar strong. We can just poison the alternatives...

    Ted Butler writes about the silver COMEX manipulation all the time. http://www.gata.org exists to talka bout the gold manipulation.

    Of course the two metals move in lockstep. The same entities are manipulating both.

  15. Veek says:

    Hi, My name is Vivek (vee wake) and I'm from Bangalore, India. I enjoyed reading your article on Hyperinflation in China and I tend towards agreeing with SOME of the things you said.

    In this article: you seem to have a rather romantic notion of Gold and Indians :)

    1. It's absolutely true that a lot of corrupt Indians and tax-evaders invest in gold.
    2. The RBI does have capital controls in place, BUT we (the common man) is allowed to purchase USD for investment purposes to the tune of 200K USD/year/individual.
    3. I don't think there ever was a 97% income-tax. It's around 30% right now at the highest slab.
    4. Poor people don't use gold.. they can't afford to. Most of them live day to day (daily wage workers). They might have a bangle or a chain that is gold and it's mostly pledged with a money-lender.

    While gold prices may go up: that doesn't directly translate to the common man getting any richer. Wealth is concentrated in the hands of a select few and they aren't going to unwind their gold positions - they have no need to.

    I'm from a middle class Indian family and we don't own any gold besides a few trinkets (social purposes).

    Indian exports are 1% of global world trade so we are somewhat insulated from a fall in exports. Unfortunately:
    a. High internal debt
    b. FDI has caused a lot of liquidity (so the rupee will loose value internally)
    c. Our imports petroleum/power will become prohibitively expensive.

    We will see high inflation but not as a result of selling gold :) Changing weather patterns will compound problems (rural unrest). Cities out here will become unlivable because of the cost involved in transporting goods to the CBD and increased competition from other nations doing BPO work.

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