Commodity Trade Mantra

Regarding Gold – You Should Think Like an Indian

Regarding Gold - You Should Think Like an Indian

Regarding Gold – You Should Think Like an Indian

For centuries, East Indians have regarded gold as the primary source of wealth. All Indians own gold if they can afford to. They keep it as close as possible, sometimes in coin form, but often as jewellery, since “wearing wealth” means that it can be kept very close. They’re often especially reluctant to trust banks to hold their gold.

Hindus make up 80% of India’s population and, to Hindus, gold is sacred – a symbol of purity, prosperity and good fortune. It plays an important part in all Hindu ceremonial occasions and Hindus donate large amounts of gold to the temples. The temples are also distrustful of bank storage, although some do store gold in banks.

For decades, the Indian government has tried to find a way to separate the Indian people from their gold, with very little success. In recent years, they’ve tried to limit the importation of gold. They’ve also tried to tax the gold held by the temples, but it’s been difficult to do, as the gold was actually given by devotees to deities. The temple only “holds” the gold for the deities. Of course, taxing deities is a bit of a stretch, even for rapacious governments and the Indian government has been less than successful in this pursuit.

The latest governmental gambit is to offer the public interest on their gold, if they’ll deposit it in banks. The claim by India’s government is that it will cut expensive gold imports. But just what’s wrong with Indians buying imported gold? After all, they’re spending their paper rupees on something tangible that will retain value, even if paper currency should fail, as all paper currencies eventually do. So, why on earth would the government discourage the practice of holding the yellow metal?

Well, three reasons immediately come to mind.

  1. All governments want their people to recognise, as money, only that currency that has been issued by the State itself. (The use, by the people, of any other form of money, diminishes the power of the State.)
  2. Those who hold gold have a greater ability to maintain their wealth, should either the banks or the government wish to tax or otherwise seize it.
  3. Gold that’s held outside of banks is difficult to seize.

The Indian government has offered a second justification for having gold on deposit in banks – the banks could then count the gold in their Cash Reserve Ratio (CRR) – the share of deposits that a bank must retain, in house, as it loans out the rest. (The CRR minimum is now as low as 4%, a number that’s already dangerously low. If the 4% could be made up of gold, the banks wouldn’t have to maintain any physical cash.)

A third justification is that the banks could melt the gold down and “loan” it to jewellers. (Since the jewellers would borrow it to make and sell jewellery, there might be a question here as to how they would be expected to repay the loan. With other gold?)

It’s important to note that, in 2014, India elected Narendra Modi as the first Prime Minister that wasn’t from the Gandhi family. There was great hope that the new, more conservative Prime Minister would lead India away from central government bureaucracy, to a smaller government with greater freedom for Indians.

This is often the hope of a portion of the electorate in any country. And, predictably, the results have been mixed. Although Mister Modi has been more business-friendly and has eliminated a fair bit of red tape in dealing with government, he, like most all political leaders, has sought to increase the power of the central government.

Also, like most political leaders, he has developed an unhealthy relationship with the banks. Political leaders learn quickly that, if a people’s money can be controlled, the people can be controlled.

Worldwide, governments are finding themselves in a monetary crunch, brought on primarily by excessive national debt. Most have adopted the idea that, if they can eliminate monetary freedom in their countries, they can save their own skins for the foreseeable future. A primary component in this idea is to force all people, if possible, to have bank accounts and to have all monetary transactions flow through those accounts.

Unfortunately, there are many people who stubbornly wish to possess their wealth – to keep it away from the grasp of governments. In order to eliminate this tendency, much of the political world hopes to eliminate paper currency. If this can be done – if people can’t buy so much as a candy bar without a swipe with a bank card, all money would be trapped within the banks, where governments could fully control it. Access by the depositor could then be limited or even denied when “necessary.” In addition, taxes could be directly debited from the account and confiscation could be performed at will.

This plan is not without its problems, as, even if paper money is eliminated, people will seek to create a black market. They’ll trade goods for goods, create cyber currencies and create cyber labour units. Of course, governments will do their best to legislate against these, but no country has ever succeeded in eliminating a black market in times that were economically dire. After all, any black market is, in truth, a free market.

In addition to the black market, we have precious metals. Gold has been regarded as the world’s primary currency for over 5000 years. During boom times, it tends to fall into limited use, but, when hard times reappear (as they always do), so does gold. Every fiat currency eventually collapses, but gold is the only form of currency that is not simultaneously a liability of a government, so the yellow metal springs eternal.

Socialist economist John Maynard Keynes famously called gold a “barbarous relic,” and many have argued for decades that gold is a poor store of wealth, as it accrues no interest. However, we’ve entered an age in which bankers offer so little interest that it doesn’t even keep up with inflation, so depositors lose money if they store it in a bank.

In addition, some banks in the world have begun to implement negative interest rates. Although they’re presently low, we can only imagine how high they could go if legislation is passed that requires that all money be stored in banks.

Scary stuff, indeed.

And so, perennially, we return to gold. Gold is finite. No government can print any more of it, so no government can inflate its value beyond what the market will accept.

We’re entering times that will be economically turbulent in the extreme. If there were three primary principles to assure the retention of wealth (no matter how great or small), they might be

  1. Own gold and/or silver
  2. Keep your gold and silver in a jurisdiction that has a long, consistent record of political stability, low (or no) direct taxation, minimal (or non-existent) regulation of gold sales and ownership, and minimal interference with the wealth of the individual.
  3. Within such a jurisdiction, store your gold and silver in a reputable facility that’s independent of banking institutions.

By following the above three principles, you won’t be guaranteed that you’ll totally escape economic victimization by rapacious governments, but you’ll know that you’ve placed your wealth as far from them as possible, thereby increasing your odds.

Throughout the ages, there have always been governments that have attempted to part people from their wealth, but equally, there have always been ways and means of avoidance. It may well be that the first step for each of us succeeding in retaining our wealth might be to think more like an Indian.

 

 

Courtesy: Jeff Thomas

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