Just now, I read the news that the All India Gems and Jewellery Trade Federation (GJF) has asked its member jewellers to stop selling gold coins and bars to customers.
Gold coin and bar sales stopped in India
You can read the news here.
First they asked banks to stop sales of gold coin and bars. And now jewellers have stopped sales.
Why do people trust gold vs. other assets?
I have written an article about gold earlier – Pay no attention to Chidambaram when he speaks against gold.
You receive 8% on your fixed deposit (FD). Pay tax on the interest.
When consumer price inflation (CPI) has been running at around 9% plus for the last few years, you are left with negative returns. Only the government is to blame for the situation we are in today.
If I had money to place for the short term, it will be tough to find assets which will help me store the money safely and not let it be eaten away by inflation. I am not talking of equity as an asset class here because if you need to park money for the short term (less than 3-5 years) equity is not a conservative option.
I am not advocating putting a big fraction of your wealth in gold, but an investor should have the right to buy gold as an investment.
RBI gold purchase from IMF in November 2009
Recall the headlines in November 2009.
RBI buys 200 tonnes of gold worth $6.7 b from IMF – Hindu
Effectively this meant that the RBI used their reserves to buy gold at the rate of around Rs. 15750 per 10 gm.
Today it is at around Rs. 26,500 per 10 gm of gold.
So, the RBI can diversify its holdings by buying gold and you as a citizen cannot.
Shoot the messenger
This is a classic case of shooting the messenger. People flocking to gold is a symptom and not the root cause.
This is like a thermometer that shows that you are running a fever. It does not tell you what is causing the fever.
In my opinion, the government has arm twisted the jewellers lobby into this action to stop selling gold coins and bars.
Do you for one moment think that a rational businessman will give up a portion of the sales in their business in a voluntary leap of faith for the sake of the country? It is too good to be true.
The RBI and the government do not understand that people will find ways if they are pushed against the wall.
What stops jewellers from selling the most basic designs without any flourishes? Think large and chunky bracelets or bangles. I am willing to bet that we will see innovations.
I am sure that customers and businessmen together will find a way to reach their objective if the core message is not heeded.
That savers are being penalized with unfair negative real interest rates.
tandooribrain says
Jaggo India Pyaare :D. Nice Article though
Kunal Pawaskar says
Thanks.
True. Most people are unaware. The government is steadily and silently hurting people.