India wants to shoot the messenger: It wants to ban the sale of gold coins via the banking system because the rupee is falling against the dollar and other currencies. Indians are buying gold to protect themselves.
This increases India’s imports, which worsens its current account deficit and puts more pressure on the currency. So the Indian government, in its wisdom, looks to remedy the situation by trying to discourage gold imports.
India’s problem is that the emerging markets are slowing. The ‘hot money’ that previously flowed into these economies is now lukewarm at best. So the rupee is under pressure, and apparently it’s gold’s fault.
India’s citizens hold around 18,000 tonnes of gold. At $1,600 per ounce, that equates to around $1 trillion dollars, and not of debt-based money; it’s unencumbered wealth. But because it sits outside the banking system and out of reach of those who run the country, the gold has no bearing on India’s economy or currency.
We know little about India’s economy or political system, but we do know its corruption and bureaucracy are legendary. The average Indian with surplus savings knows how India operates, and accumulates wealth in gold. Bureaucracy and corruption can’t touch their gold, and they know it will retain its value.
Over the centuries, this mentality has turned the Indian population into the largest gold holders in the world. They hold tremendous wealth. This provides important insights into where the western world might be heading.
The West has tremendous wealth, but it’s all denominated in debt. As government involvement in the economy continues, and as corruption becomes more and more endemic, individuals will increasingly choose to take a portion of their wealth out of the system and preserve it in gold.
That’s why the gold bull market is 11 years old and counting. It reflects the slow but unrelenting change in Western people’s minds about how the financial world works around the evolution of wealth and power.