GaveKal: Why is Gold going up?
GaveKal has a (typical) unique perspective on why gold prices have rapidly risen over the past few weeks (and years) - Why Is Gold Going Up?: Surprisingly, India is tighly coupled with this trend:
The Keynesian model involves a debasement of the currency leading to a weaker currency under easy liquidity and low interest rates. When the US dollar is debased, the US dollar gold price tends to rise. Under a Fisherian model it is better to own cash than gold.
The inflation rate in India is currently around 6.5% and real rates are negative. In the meantime, the Indian government has been dumping rupees into the system to prevent the currency from rising. The average middle-class Indian can invest in the stock market or in property, both of which have been soaring, but what can he do to diversify his risk? He can’t hold cash or bonds while real rates are negative. The solution is to put money into gold.
“The lifting of exchange controls in India or China is a Damocles sword hanging over gold’s head.”
We are seeing an increasing range of investment options for Indian investors (foreign stocks, ETFs, etc.) and depending on how fast the SEBI, RBI & the government move, we might see a transfer of wealth out of gold.
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