Gold

[Skol]

Please supply the reference for this 21 year low Skol, so I can check it out..

Here it is from the FT dated June 11, 2010.
You won't need your slide rule to work out what's going to happen when the hoarding stops.

GFMS, the precious metals consultancy, says investors last year bought more gold than buyers of jewellery for the first time in three decades. Investment demand doubled to 1,820 tonnes, while jewellery purchases fell 23 per cent to 1,687 tonnes, a 21-year low. The change is critical for the networks of vaults because investors tend to buy and to hold their bars and coins, needing vault space for years if not decades, while fabricators of jewellery only use vaults as a short stop-over.

[elZorro]

Here it is from the FT dated June 11, 2010.
You won't need your slide rule to work out what's going to happen when the hoarding stops.

GFMS, the precious metals consultancy, says investors last year bought more gold than buyers of jewellery for the first time in three decades. Investment demand doubled to 1,820 tonnes, while jewellery purchases fell 23 per cent to 1,687 tonnes, a 21-year low. The change is critical for the networks of vaults because investors tend to buy and to hold their bars and coins, needing vault space for years if not decades, while fabricators of jewellery only use vaults as a short stop-over.

http://www.ft.com/cms/s/0/a55a0e62-7...44feabdc0.html

I found the link OK, cheers. Isn't this article around the wrong way for you? Burgeoning gold deposits boost gold price, goldbugs win again..

And of course, India had a bad time last year, poor monsoon, droughts. That 23% drop should be reversed this year. September is normally a good month for the PoG.

[inghamp]

Gold is still only $50 away from its record levels. The Fed is going back into Quantitative Easing because the “L” shaped recovery is threatening to turn into a double-dip recession. U.S. consumers are saving 6.4% of their income, before they saved only 1 to 2 %.

Money velocity is threatening to slow, money supply is shrinking and deflation looming on the horizon. All of this points to a weak U.S. gold jewelry market. In the rest of the developed world the picture is nearly the same, so it is reasonable to expect world jewelry demand to be weak? With gold demand accounting to roughly 60% of total gold demand in the past, can the gold price rise if the gold jewelry market is weak?

What is the jewelry market?

As defined by most market analysts the word jewelry is a misnomer. It is a broad sweeping title that fails to describe accurately the type of demand it is supposed to describe. In the mind’s eye of the western analyst it describes developed world jewelry, with the insinuation that global jewelry markets are the same. They are not.

1. Developed world gold jewelry markets use gold to enhance a piece of jewelry. The emphasis and main cost lies in the workmanship of the designer and the stones used, rarely the gold content. Gold content is usually a minor part of the piece. Where the pieces are just gold jewelry, the gold is often diluted from a pure gold content of 24 carats to 18 or 9 carats of gold. Consequently the piece of jewelry is bought as decoration and almost never for its gold content. In Western cultures [through to Italy] buyers of gold jewelry do so not as an expression of investment but simply as decoration. This makes it totally different from gold jewelry markets East of Italy. There is almost never any intention of mortgaging, re-selling or melting down for scrap, when the piece is bought.

The blurring lines of Jewelry and Investment markets

Jewelry markets east of Italy change their nature, with gold jewelry becoming an expression of wealth, of money and of investment by the owner. We are talking here of around three quarters of the globe’s population [getting richer by the day], when we talk of this attitude to gold jewelry.

Why India loves Gold

India expresses this attitude in the most visible way. The bride’s parents give their daughter a gift of pure gold in the form of jewelry with which to provide financial security to the couple. In parts of South India, which has more gold per capita than anywhere else in the world, wealthy families can be expected to send off a bride with at least a kilogram of gold as part of a marriage arrangement. Along with its key role in weddings, gold is used to flaunt family wealth and signify social status. It has also been a popular source of retirement saving and insurance against calamity. No one knows exactly how much gold has been passed from generation to generation and is now stashed in safe deposit boxes across India and South Africa. But we believe Indian families are sitting on about 20,000 tonnes of gold in India alone.

Gold at family level is money and valued far more than the Rupee, which comes with the watchful monitoring eye of government and taxes and regulation, something history has taught Indian to despise.

A basic intention of owning gold in India and in Asia in general is that one day it can be sold or mortgaged to save the family from a financial crisis. It is occasionally sold when the owners believe that the local price of gold is too high and will come down. But such a sale is usually done with the intention of buying back the gold at a lower price. A look back 50 years helps us to understand this.

India’s disastrous 1962 war with China severely depleted India’s foreign reserves and removed credible backing for the Rupee. To prevent a massive flight out of the Rupee, the government established the Gold Control Act in 1962, forbidding private ownership of gold bullion and mandating the conversion of all private gold bullion into gold jewelry. This prevented the rise of an alternate currency if the Rupee should flounder. [This action is not too far from the 1933 Gold Confiscation Act that the U.S. experienced.]

In 1969, the Indian government under Indira Gandhi nationalized the banks and mandated licenses for almost everything. This was the beginning of the “License Raj” in India, which instituted rampant corruption in all levels of the bureaucracy. Indians had to develop as system, at ground level, to avoid the impact of this system. Due to this ban on gold, the value of gold in relation to other commodities and the Rupee soared. The high marginal tax rate [95%] gave rise to a huge black market. Citizens needed a way to hide and protect their assets from the taxman, and gold was one of the two asset classes that proved effective for doing so [the other being real estate]. These attitudes persist, because government has not improved its record that much since then.

Add to that another reason why extensive gold holdings are prudent in today’s context is the paltry level of insurance provided to bank deposits. A fractional reserve banking system is inherently insolvent and needs government insurance to prevent a run on deposits. In India, the amount covered under deposit insurance is just Rs100,000, which is only $2,170. In contrast, federal deposit insurance in the United States was recently increased from $100,000 to $250,000. With the need for banks to be close and supportive of government action, there is little incentive for Indians to embrace the banking system fully. So gold is very much a part of an alternative financial system that is not likely to disappear in the foreseeable future.

In India, gold jewelry should be defined, in western parlance, as investment, not jewelry. This applies to Asia in its entirety.

Can the gold price rise if the gold jewelry market is weak?

Re-defining the jewelry market as the developed world jewelry market, we do believe that it will recover in line with the “L”-shaped recovery and dip, if a recession re-visits the developed world.

The vigorous growth we are seeing in India and the rest of Asia, the demand for [investment] gold will rise alongside their growing wealth and the development of their middle-classes. The turmoil and poverty they have experienced during their lives will prompt them to accumulate gold as savings for dark days. Some of this gold will be shaped into jewelry, but it will always remain an investment / savings / insurance.

The Future Significance of the Indian experience

In time and through experiences that lie ahead, we have no doubt that the world will move closer to the Indian attitude towards gold and jewelry. As you saw, their attitude stems from government abuse of money and their citizen’s money in particular. Pertinently, when the government banned gold ownership the gold price in India soared, certainly a feature of gold that will be repeated if any government decides to confiscate its citizens gold.

With this in mind we have no doubt that the price of gold will rise as financial crises become par for the course in today’s world.

[upside_umop]

1) You cannot deny that in the last 10 years or so, Gold has been volatile in the upwards direction. If it dropped 30% from its current price, many mines would have very limited profitablility. It's at a fair price.

2) I remember a philosophy lecturer giving a talk to a general audience, and he said "Has anyone ever seen the economy?" Doesn't make it less real. Gold has a lot of perceived value, that will remain. It's almost the one constant.

1) I can't deny that, no. You can't deny any fact that has happened over the last 10 years though! EZ, did you know that 'risk' is defined as volatility? And like I've said before, if you compare gold against another store of value (Treasuries/Bonds) then since the US fixed their exchange rate relative to other currencies on the gold standard in 1900 to 2008, it is the only meaningful comparison given its high volatility. Yes, volatility of gold is around 20% per annum.

What would you rather invest in for a store of value, or an inflation hedge?
-Gold bullion with 20% standard deviation, or;
-Treasuries with virtually zero risk that has offered the same return since the all important year of 1900 (or TIPS as past performance is no indication of future...or so they say).

If equities are risky assets by definition, then Gold is more risky as the risk to reward ratio is out of whack. The reward has only been that of treasuries and much less than government bonds. Look up 'Sharpe ratio' and you will see a basic analysis on how to evaluate risk/reward.

2) That is true. I can't see the real economy...but I certainly can see cashflow rolling into my bank account from a fundamental business or stock (dividends). The only cashflow I see for gold is going out of the bank account. Those cashflows are entirely tangible, and yes, you can see them! You have to start asking yourself 'why does gold have a perceived value?' For me, I perceive that people perceive the value in gold because of the past - 'it just is'....the more educated people get, the more they will see its not a real investment. Why else haven't the richest, most educated countries in the world not been buying gold as an 'investment'? (There may have been some, but I'd consider the relationship pretty strong).

I know you buy OGC. I consider stocks completely different to buying bullion. I would buy a gold stock, if it was fundamentally sound. You see with OGC, they're not hanging on to the gold themselves...they're selling it to the 'suckers' as Skol puts it. This is good, as it creates cashflow and ultimately a return.

[upside_umop]

Inherent nonsense people "invest" for profit,to compare anything on 100yr cycles is meaningless and not relevant to an individuals lifespan or investment time span.
Gold over the last 8yrs has been superior to any other investment I can think of with its capitol appreciation in any currency>
Whether it will continue to do so we will all find out in time and this obsessive,compulsive,have to be right argument and who is right or wrong will be come apparent with time,despite what is said here.
Economist speak good money(what ever that is gold,silver,currency) drives out bad money.

Like I've said earlier numerous times, when you have volatility you have to stretch out the comparison period given the short term is made useless. 9 years is a short time in the context of 20% volatility.

I could think of some examples that have beaten gold hands down. I could have jumped from stock to stock to stock etc for the last 9 years (with hindsight of course!) and been a millionaire of a dollar I reckon. That is if I looked back...

But your right, we will see what happens. I'm just laying out my argument as to why I think its not fundamental to buy gold. Herds are powerful and it may double again. I just don't see how or why it could, other than a fever or uninformed market participants. Even if there is rampant inflation, there are other tools to hedge that risk (TIPS with zero risk). Why go for gold? Its called speculation and for all those who did speculate to come back and say 'look how smart I was.'

[upside_umop]

its apparent every single day stevo
did the candle close higher or lower??
of the last 14 candles all but two have had a higher close
nearly $70 USD an oz up in that time.

We all know that momentum exists. Just don't be holding the parcel when the music stops. I.e. When marginal hoarding = 0.

[elZorro]

I'm really enjoying this thread - of course all of us are right - some of the time. Those thinking gold will go up for a while yet have plenty of evidence for that, while on the other side there are those that are saying "If it was that easy, we would all be betting on it".

Inghamp, another great post, but have a look back 5 days and open a link..I beat you to it on google

UU, yes gold is volatile, but I can usually wait to get the timing right when buying or selling OGC, so that is a good thing. I've only just started to see how the dynamics for gold work, and how linked the two are. It has become easier to predict what might happen (I'm still no good at it). One other really good thing about gold is that there are many who write their comments on its direction, whereas an individual share might be lower in support on the web.

I am unlikely to hold gold at home when I can own shares in a miner. But you should not own shares in that industry without keeping an eye on the gold price and its direction. It's a leveraged gold investment, but it works both ways.

Ratios: Best Way to Determine Price Direction of Gold

By Jason Hamlin, on May 12th, 2009

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Trading without indicators is like running blind and it encourages emotional trading that is the bane of successful investors. Below are brief descriptions of 5 of the most popular gold mining company indices and how they should be used in conjunction with the price of gold to determine the future movement of gold bullion and gold mining stocks.
The HUI Index
The AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of 15 large cap (80%) and medium cap (19.5%) gold mining companies that do not hedge their gold beyond 1.5 years. The 3 largest companies make up approx. 37%* of the index by weight with the remaining 12 companies, at 4-6% each, making up the balance. (*as of March 4th, ’09) See: http://amex.com/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=HUI for more current information.
The XAU Index
The Philadelphia Gold and Silver Sector Index (XAU) contain 16 large (82.5%) and medium (15%) capitalization weighted companies engaged in the mining of gold, silver and copper. Here the same 3 largest companies account for 48.6% (as of March 4th, ‘09) of the index by weight. See: www.nasdaqtrader.com/Dynamic/PublicIndex/XAU.txt for more current information.
The SPTGD Index
The S&P/TSX Global Gold Index (SPTGD) consists of 19 modified market capitalization-weighted companies (77.5% large cap; 18.7% medium cap) involved in precious metals (primarily gold) mining. The 3 largest cap companies dominate the index with 51.5% (as of March 4th, ‘09) by weight. A proxy for the index is either XGD or CMW and both trade in Canadian dollars on the Toronto Stock Exchange. See: http://.ca.ishares.com/product_info/fund_holdings.do?ticker=XGD for more current information.
The GDM Index
The NYSE Arca Gold Miners Index (GDM) is a modified market capitalization weighted index of 31 companies (72% large cap; 22% medium cap and 5.5% small cap) involved primarily in the mining of gold and silver. The 3 largest cap companies again dominate the index (at 30% by index weight) but to a much lesser extent than in the HUI (37%), the XAU (48.6%) or the SPTGD (51.5%). The GDM Index represents the largest cross-section of precious metals mining companies exploring, developing and mining around the world. A proxy for the index is GDX. See: http://www.amex.com/othProd/prodInf/opPiIndComp.jsp?prod_Symbol=GDM for more current information.
The CDNX Index
The S&P/TSX Venture Composition Index (CDNX) consists of 558 micro cap companies of which 44% are involved in the early stages of the exploring, developing and/or mining and 18% in oil and gas exploration. This is the only index that gives insight into the price trends of micro cap companies almost exclusively (99.4%).
So what are the ratios and indicators that should be considered in determining the movement of precious metals stocks and their warrants (where available)? Well, some provide a macro view of how the sector is trending while others indicate trends of a more immediate nature and, as such, when to buy and when to sell. The latter will be addressed in my article next week entitled “Time the Market with these Technical Indicators.” This article we will deal exclusively with the macro view.
How Best to Apply the Gold:HUI, Gold:XAU, Gold:GDX, Gold:XGD and CDNX:XGD Ratios
The Gold/HUI, Gold/XAU, Gold/GDX and Gold/XGD Ratios divide the daily close of the price of gold by the daily close of the price of the particular index and when charted over time provide an excellent running representation of relative strength and weakness between the two variables. When a gold/gold stock (G/GS) ratio is climbing on a chart, it means the top number is outperforming the bottom number and vice versa.
Usually if any one of the G/GS ratios mentioned here is rising significantly it is during a major index up-leg because gold stocks tend to rise much faster than the gold they mine. Why is that? Well, let’s look at it this way: if gold is $800 and the cost of production is $400 and a year later gold is $1000 and the cost of production has gone up by 10% to $440 then the profit of mining the gold has increased from 50% to 56%. As such, the cash flow of the mining company goes up and the size of the resource and the value of the company go up. Therein lays the leverage. If this ratio is falling significantly though, it usually means a major correction is underway in the stock components of the various indices. Leverage is a double-edged sword, so gold stocks fall faster than gold in their periodic corrections. If gold falls more slowly than these various indices it is outperforming these indices and lowering the various ratios.
These various G/GS ratios are best used only as secondary confirmation and not as primary trading signals. Never the less, due to their ease of use and seeming clarity many investors and speculators have been using them as primary decision making sources of information. It is crucial they understand their limitations because their use is subjective at best. For example, should a G/GS ratio sell signal, such as a break under its 50-day moving average, be at 0.1% under for 1 day or 1%+ under for 5 consecutive days or whatever? What if the G/GS ratio goes back above the 50dma? Was it not a real failure then? No matter what decision criteria are used, they are subjective. That’s the rub!
It is this great degree of subjectivity that is the greatest limitation of the various G/GS ratios and most other trading indicators and systems. No matter how careful you are with these indicators you have to make many assumptions and they will adversely affect their utility without a doubt. There is absolutely no way around this fact. Thus the various G/GS ratios, as mentioned above, are probably best used as one of many indicators, not just in isolation.
Another problem with the various G/GS ratios is their frequency of flashing signals. They often flash during minor rallies and pullbacks and the more often they fire, the less likely their signals will be useful and profitable.
The point here is that in any G/GS ratio analysis, the more volatile of the two variables tends to overpower the less volatile. Since gold stocks are far more volatile than gold, their movements are more defining for the ratio than those of gold. With unequal volatility, there is never parity between the two variables in terms of their ultimate influence on the final ratio. (To develop your own G/GS ratio chart go to www.stockcharts.com and type in $GOLD:$HUI, $GOLD:$XAU, etc. for the time frame you wish to examine.)
For those interested in reading further on the intricacies of deploying gold:gold index ratios to determine the future direction of either component I suggest 3 articles written by Adam Hamilton over the years, namely: “Gold Bugs Index HUI/Gold Ratio (May, 2005); “HUI/Gold Ratio Limitations” (September 2006); and “GDX Gold-Stock ETF” (December 2007).
The CDNX/XGD Ratio
So what’s an investor to do to identify developing macro trends in precious metal stocks and warrants? One ratio to follow closely is that of the CDNX/XGD and another is the level of the Purchasing Managers Index relative to the XAU Index.
As mentioned above, the XGD index follows the performance of 19 large (77.6%), medium (18.7%) and small cap (3.7%) companies and the CDNX that of 558 micro cap companies (99%). Comparing the divergence of each index to the other is an ideal way to determine if a developing trend is equally affecting all mining shares in general, just the large/medium/small cap sector or just the micro venture capital sector. The CDNX to XGD comparison works better than that of the CDNX to any one of the other mining sector indices in that both the CDNX and the XGD are traded on the Toronto Stock Exchange in Canadian dollars whereas the HUI, XAU and GDX indexes are denominated in U.S. dollars and, as such, are susceptible to the influence of exchange rate variances when comparing any one of them with the CDNX.
Gold sector analysts and commentators always assume that the large cap dominated indices, either alone or in relation to gold, indicate the true current trend of the entire precious metals mining sector but that is simply not the case. In doing so they ignore the health and, as such, the price performance of the micro cap gold and silver exploring/developing/mining companies which represents in excess of 80% of the total number of companies in the precious metals sector. A comparison of the CDNX with the XGD reveals a much more accurate picture of what is truly happening in the gold mining sector.
The Purchasing Managers Index
The Institute for Supply Management publishes a monthly Purchasing Managers Index (PMI) which indicates the extent to which the U.S. manufacturing economy is expanding or declining. According to research by John Hussman, when the Gold/XAU (G/X) ratio has been greater than 5.0 (it was 7.0 on March 20th 2009) and the PMI has been less than 50 (it was 35.8 for February 2009), gold mining shares have appreciated at an average annualized rate of 125.6% the year following. In contrast, when the G/X ratio has been less than 3.0 and the PMI has been greater than 50, gold mining shares have plunged at an average annualized rate of -49.9%. Hussman points out that since 1974 the G/X ratio has been greater than 5.0 about 15% of the time and when it has been that high the XAU has followed with annualized gains of 89.6% on average; 27.4% when the ratio has been greater than 4.0 but an extremely disappointing -36.6% when the ratio has been less than 3.0. Given the similar tracking of the XAU with the HUI and the GDX similar percentage changes can be expected from the HUI and the GDX. Such is not the case with the XGD due to the fluctuation of the Canadian dollar vis-à-vis the U.S. dollar in which gold is denominated. (Please refer to www.ism.ws/ISMReport/MfgROB.cfm for the latest monthly data.)
So there you have it. You now better understand the strengths and weaknesses of the more popular gold stock indexes; how ratios operate; the limitations and risks of using gold:gold stock ratios in isolation; how to track the performance of the micro-cap gold mining sector in addition to that of the large and medium cap sector; and understand the insightful relationship of the various indexes to the Purchasing Managers Index.
This knowledge needs to be used in conjunction with a number of technical indicators to determine the short-term direction, stability, strength and weakness of any trends in the price of gold, baskets of large/medium and micro cap gold mining stocks and most certainly individual stocks, be they those related to precious metals mining or any other individual security. Such will be addressed in a future article.
Lorimer Wilson is an economic/financial analyst and commentator who has written numerous articles on the major economic and financial crises (past, present and impending) of our times plus articles on precious and rare earth metals, investing in times of crisis, market timing indicators and analyses of gold mining indices and gold:gold mining index ratios. He is a contributing editor to www.preciousmetalswarrants.com can be contacted at lorimer [dot]wilson[at]live[dot]com.

[inghamp]

Hi all,

What are your thoughts on the central banks leasing deposits? Sounds preposterous! Find it very hard to believe they would do this...

Need clarification, ideas about what to read. All side's opinions wanted.

[JBmurc]

$1226 bout time it started moving $1300 here we come

[upside_umop]

I wasn't going to reply to this post cos because it looked full of nonsense and was long!

Gold is still only $50 away from its record levels. The Fed is going back into Quantitative Easing because the “L” shaped recovery is threatening to turn into a double-dip recession. U.S. consumers are saving 6.4% of their income, before they saved only 1 to 2 %

Not trying to be too nit picky but wasn't their national savings in the negatives?

(1) Money velocity is threatening to slow, money supply is shrinking and deflation looming on the horizon. All of this points to a weak U.S. gold jewelry market. In the rest of the developed world the picture is nearly the same, so it is reasonable to expect world jewelry demand to be weak? With gold demand accounting to roughly 60% of total gold demand in the past, can the gold price rise if the gold jewelry market is weak?

1) If money velocity is slowing, they rightly point out that money supply is shrinking and potential deflation around the corner. I don't think the shrinking of the jewerly market would be the biggest concern...it would be the all important 'hoarding' as people wouldn't be holding on speculation of inflation?

2) Gold demand accounts for 60% of gold demand? Here I was thinking demand usually equals supply! It does show the quality of some of these articles when they don't bother to proof-read etc. I know what they're trying to say, but can you really trust their analysis? They're trying to say 60% demand is associated with the jewerly market. Right?

What is the jewelry market?

As defined by most market analysts the word jewelry is a misnomer. It is a broad sweeping title that fails to describe accurately the type of demand it is supposed to describe. In the mind’s eye of the western analyst it describes developed world jewelry, with the insinuation that global jewelry markets are the same. They are not.

1. Developed world gold jewelry markets use gold to enhance a piece of jewelry. The emphasis and main cost lies in the workmanship of the designer and the stones used, rarely the gold content. Gold content is usually a minor part of the piece. Where the pieces are just gold jewelry, the gold is often diluted from a pure gold content of 24 carats to 18 or 9 carats of gold. Consequently the piece of jewelry is bought as decoration and almost never for its gold content. In Western cultures [through to Italy] buyers of gold jewelry do so not as an expression of investment but simply as decoration. This makes it totally different from gold jewelry markets East of Italy. There is almost never any intention of mortgaging, re-selling or melting down for scrap, when the piece is bought.

I guess that definition is OK. But I wouldn't totally agree with that last line. They may not have the intention, but a lot certainly do! They're willing to sell at the malls for around a 50% discount to spot!

The blurring lines of Jewelry and Investment markets

Jewelry markets east of Italy change their nature, with gold jewelry becoming an expression of wealth, of money and of investment by the owner. We are talking here of around three quarters of the globe’s population [getting richer by the day], when we talk of this attitude to gold jewelry.

When they need their money to cover their positions of falling house prices, I'm sure we'll see lots of gold on the market. Surely they won't just sit and stare it to be mesmerised by how shiny it is? Herds go both ways.

Why India loves Gold

India expresses this attitude in the most visible way. The bride’s parents give their daughter a gift of pure gold in the form of jewelry with which to provide financial security to the couple. In parts of South India, which has more gold per capita than anywhere else in the world, wealthy families can be expected to send off a bride with at least a kilogram of gold as part of a marriage arrangement. Along with its key role in weddings, gold is used to flaunt family wealth and signify social status. It has also been a popular source of retirement saving and insurance against calamity. No one knows exactly how much gold has been passed from generation to generation and is now stashed in safe deposit boxes across India and South Africa. But we believe Indian families are sitting on about 20,000 tonnes of gold in India alone.

Gold at family level is money and valued far more than the Rupee, which comes with the watchful monitoring eye of government and taxes and regulation, something history has taught Indian to despise.

A basic intention of owning gold in India and in Asia in general is that one day it can be sold or mortgaged to save the family from a financial crisis. It is occasionally sold when the owners believe that the local price of gold is too high and will come down. But such a sale is usually done with the intention of buying back the gold at a lower price. A look back 50 years helps us to understand this.

India’s disastrous 1962 war with China severely depleted India’s foreign reserves and removed credible backing for the Rupee. To prevent a massive flight out of the Rupee, the government established the Gold Control Act in 1962, forbidding private ownership of gold bullion and mandating the conversion of all private gold bullion into gold jewelry. This prevented the rise of an alternate currency if the Rupee should flounder. [This action is not too far from the 1933 Gold Confiscation Act that the U.S. experienced.]

In 1969, the Indian government under Indira Gandhi nationalized the banks and mandated licenses for almost everything. This was the beginning of the “License Raj” in India, which instituted rampant corruption in all levels of the bureaucracy. Indians had to develop as system, at ground level, to avoid the impact of this system. Due to this ban on gold, the value of gold in relation to other commodities and the Rupee soared. The high marginal tax rate [95%] gave rise to a huge black market. Citizens needed a way to hide and protect their assets from the taxman, and gold was one of the two asset classes that proved effective for doing so [the other being real estate]. These attitudes persist, because government has not improved its record that much since then.

I can't see how that little history trip helped us understand how 'Indians sell high and buy back lower'? Interesting none the less, as it showed not only was the govt corrupt but the general population too. If you can't beat em, join em, eh?

Add to that another reason why extensive gold holdings are prudent in today’s context is the paltry level of insurance provided to bank deposits. A fractional reserve banking system is inherently insolvent and needs government insurance to prevent a run on deposits. In India, the amount covered under deposit insurance is just Rs100,000, which is only $2,170. In contrast, federal deposit insurance in the United States was recently increased from $100,000 to $250,000. With the need for banks to be close and supportive of government action, there is little incentive for Indians to embrace the banking system fully. So gold is very much a part of an alternative financial system that is not likely to disappear in the foreseeable future.

Wrong. Under the right regulations, banks are financially sound. In the wrong regulations in competitive market it can be disastrous. Sure, there was the GFC but if you had the gold as the 'fraction' you would have still run into the same trouble. Can you imagine having to lend a one-one to ratio? Fractional reserve systems enable banks to act as efficient financial intermediaries. Without efficiency and the lubrication that FRB offers, it would mean less economic growth. Less economic growth is a reduced standard of living. You can't tell me we would be enjoying the same standard of living without credit.

In India, gold jewelry should be defined, in western parlance, as investment, not jewelry. This applies to Asia in its entirety.

Can the gold price rise if the gold jewelry market is weak?

Re-defining the jewelry market as the developed world jewelry market, we do believe that it will recover in line with the “L”-shaped recovery and dip, if a recession re-visits the developed world.

The vigorous growth we are seeing in India and the rest of Asia, the demand for [investment] gold will rise alongside their growing wealth and the development of their middle-classes. The turmoil and poverty they have experienced during their lives will prompt them to accumulate gold as savings for dark days. Some of this gold will be shaped into jewelry, but it will always remain an investment / savings / insurance.

Blah. The marginal demand is coming from hoarding. Who knows though, gold may double again. Its an irrational market out there.

The Future Significance of the Indian experience

In time and through experiences that lie ahead, we have no doubt that the world will move closer to the Indian attitude towards gold and jewelry. As you saw, their attitude stems from government abuse of money and their citizen’s money in particular. Pertinently, when the government banned gold ownership the gold price in India soared, certainly a feature of gold that will be repeated if any government decides to confiscate its citizens gold.

With this in mind we have no doubt that the price of gold will rise as financial crises become par for the course in today’s world.

Speculation is a wonderful thing. 'Through experiences that lie ahead' - Have you ever heard such a statement? This guy is Nostradamus.

'We have no doubt that the world will move closer to the Indian attitude towards gold and jewelry' - Now this is getting scary. He is 100% percent confident that the world will move towards the indian gold hoarding model - using his Nostradamus thinking.

'Certainly a feature of gold that will be repeated if any government decides to confiscate its citizens gold'

Of course it would. Domestic supply would be reduced and people would be forced to the black market. Do you think Class-A drugs would be as expensive as they are if they could be freely traded and produced on the street without any legal repercussions?

The only fundamental thing I see happening for gold price at the moment is production worldwide seems to be on the decline. This article could have at least stated that to have something with a decent bit of fact behind it! Nevermind, fact usually doesn't make people excited or scared.

All the other reasons are because 'it just is.' Still might make it double though.