Why has gold been so trustworthy???

 





For all gold enthusiasts here is the answer 


Gold has a special place in Indian households and is blindly trusted by Indians and let's delve deeper into how gold has earned such a special place. let's weigh-in.

Gold as investment vs currency vs insurance vs ornaments 


Let's desegregate into different clubs which gold belongs to 

Investment: Anything which puts money into your pocket can be called an investment just because you hoard gold nobody gives you a penny unlike stocks or bank deposits which earn dividends and interest for just hoarding it, so gold will only have capital appreciation without yearly yield making a bad investment. On the flip side, it has an added benefit of easy transfer of wealth unlike any other investment known to man with less or no paperwork.

Currency: Gold is a perfect currency as its supply is constant, it is either present under the earth or above the earth and with no scope for manipulation. Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value. Unlike bitcoin gold can be stored at minimum cost, with all these characteristics gold has maintained its purchasing power for 5000 years (Suppose you bought 100 Kgs of sugar for 3000 rupees 10 years ago and need 5000 rupees to buy today, It only shows rupee has lost its purchasing power over the years but gold is so uniquely placed to have maintained its purchasing power for the last 5000 years buying same 100kgs of sugar  over the years for a gram of gold)

Insurance: Prof R Vaidyanathan of IIM Bangalore opines gold (as mangal sutra and jewels )  was given in olden days during marriages to the bride (before migrating to husbands place ) as it would act as an insurance in case of husband's untimely death and can be removed once husband passes away so that it would serve as a pension even when ignored by her kids.
Gold even today acts as apathbandava when in need of instant cash, as credit is not easily available in India to weaker sections of society, it can be easily pledged with less or minimal paperwork across the country. Gold rather than pledging when sold not only prevents monthly interest payments, late fee charges levied, foreclose of it due to nonpayment of interest for a stipulated time but gets market price which is more money than when pledged!!!!!!!.....


Ornaments: Along with the mentioned above financial uses, Ornaments cater to social and religious beliefs, To further the financial uses jewels with less making and wastage charges would be preferable.

The price of Gold in INDIA depends on 

Demand and supply:  The majority of gold investors view it as insurance, hedge against inflation, or storehouse of value. When the global economy falters then western investors will continue to look towards gold for its diversification and portfolio insurance properties. Conversely, if the economic recovery becomes more firmly entrenched, then inflation concerns are likely to continue to gain prominence. However, in India( second largest consumer(900 tonnes) in the world only after china(1200 tonnes) ), most would buy gold regardless of how the economy performs( According to the research published by FICCI)  so there will be an increased demand for gold across the globe furthering its price higher. 

Repo rate of US: As gold is traded in Dollars, the monetary policy of America impacts the price of gold cheap money values gold for a higher price but, during the tight monetary policy for a lower price since America has flooded the world with its liquidity price of gold may continue to rise.

Dollar rupee conversion: As domestic consumers in India buy in rupees as and when the rupee gets  devalued the price of gold in India will continue to rise 

Taxes: As India is yet to efficiently recycle gold which is already present we regularly import gold costing huge import bills to lessen the appetite for gold consumption government has imposed customs duty tax (10%) and additional GST (3%) on it.




The increased uptick in demand, cheap dollars flood, devaluation of Indian rupees, and negative views on gold by governments make me bullish on Gold.




References:

https://ficci.in/spdocument/20514/Gold%20Report%20%20final.pdf

https://journals.indexcopernicus.com/api/file/viewByFileId/132601.pdf

https://www.weforum.org/agenda/2019/07/why-gold-is-money-a-periodic-perspective/



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