India's finance minister begs citizens to quit buying gold

[DINGO Joe]

http://www.bloomberg.com/news/2013-06-20/indians-are-urged-to-get-over-their-gold-bug-.html


I was amused to find this story since I generally regard India as the most incompetent place on Earth and I view gold as an empty sham.  Nice to see them dovetail so nicely.

In a nutshell:

The people of India are the world biggest gold bug's (maybe after the Paulinites) accounting for as much as 1/3rd of the world's physical demand each year.  Since India doesn't produce any gold all the spending on gold totally wrecks the Trade and Current Account Deficits.  These things tend to negatively impact one's currency, leading to more inflation and thus the desire to find shelters from inflation (though much of India's infatuation with gold is cultural--ceremonial).     India keeps slapping higher import tariffs on gold, but that hasn't worked,  so the Finance minister has been reduced to begging and basically saying that continuing to buy gold will destroy the country.

[jaichind]

Well, India historically has high inflation on the order of 10% every year for several decades.  In the early 2000s it was low for a while but now is back up at 10% every year again.  So Indians do need some ability to hedge against inflation.  The only other real liquid asset are Indian government bonds which banks are forced to buy (mostly at a loss in after inflation tersm) but their value are eroded by inflation.  So until something better comes up it will have to be gold.  I guess an alternative would be liberalization of the real estate market to make it easier to buy, sell and borrow agsinst real estate.

[minionofmidas]

Besides, the wife can't wear government bonds.

[bullmoose88]

Besides, the wife can't wear government bonds.

Hah.  Win.

[tpfkaw]

There's a word for people who buy Indian government bonds, and it rhymes with "boron."