The world over, air has whooshed out of bubbles in stocks, crude oil, metals and real estate. But before recovery comes, another bubble needs to burst: the bubble in gold prices. Around $950 per ounce, gold is still close to its all-time high of March last year, when it closed at $1,002 per ounce, three times costlier than what it had been from 1999 to 2002.
A gold crash sounds like heresy. Deep in our hearts is a belief that gold is the ultimate asset, the final port of call in times of instability, the safest thing to buy and hold when all else looks doomed. But the heart is an unreliable guide for these things. And the warning bells are ringing at home.
India is the world’s largest hoarder of gold. It’s reckoned that the stockpile of gold here now is more than the 8,000 tonnes stashed away in the US treasury’s vaults in Fort Knox. Unlike the US, where the government owns most of the gold, India’s government owns a measly 300-odd tonnes. The rest is in private hands: bridal jewellery in Godrej almirahs or bank lockers. And little of this hoard comes up for sale.
We take our women’s jewellery seriously. Selling your wife’s bridal baubles would be a last resort, a signal to society of moral and financial bankruptcy, deserving more social scorn than passing wind in a room full of prospective in-laws negotiating an arranged marriage. In Bengal, the tale that Rabindranath Tagore’s wife pawned her bridal gold to help her husband fund a university is the stuff of martyrdom even today.
But at today’s prices our greed for gold has evaporated. In February, India’s imports of gold were close to zero, down from 28 tonnes a year ago. In March, it’s the same story, no imports. Jewellery sales in the marriage season are expected to be low and a lot of bridal jewellery is mothers’ hoard, recycled. High prices have forced the world’s largest gold junkie to kick its habit.
Yet, reports hint that gold exchange traded funds (ETFs), pieces of paper whose value is linked to gold prices, are still pulling subscribers. Why are people buying paper gold when they can’t afford the real thing for their daughters’ marriages? Because speculators are buying the paper, when folks that really need gold can’t afford to. But who needs gold and why?
Historically, gold has been valued for adornment. Till about 500 years ago, it also had value as currency. But around the 16th century, paper currency started flooding the world, with good reason. Gold is very dense and heavy. A little cube of gold, measuring one foot on each side weighs half a tonne, about as much as a Maruti 800. Today this cube would be worth Rs 85 crore, but for that transaction nobody would lug a gold Maruti around. A weightless electronic money transfer would suffice.
In the 21st century, there are specialised uses of gold in tiny volumes for scientists working on fuel cells, or semiconductors, or heat resistant fabrics. Gold is inert, it doesn’t decay. A gold tooth filling made 5,000 years ago will fill your tooth today. It’s malleable, you can twist it to make any kind of shape, something jewellers have known for ages. These properties make gold interesting in the labs. But researchers in labs don’t set the price of gold. Who sets the price of gold is a story with a beginning and end.
A gold crash sounds like heresy. Deep in our hearts is a belief that gold is the ultimate asset, the final port of call in times of instability, the safest thing to buy and hold when all else looks doomed. But the heart is an unreliable guide for these things. And the warning bells are ringing at home.
India is the world’s largest hoarder of gold. It’s reckoned that the stockpile of gold here now is more than the 8,000 tonnes stashed away in the US treasury’s vaults in Fort Knox. Unlike the US, where the government owns most of the gold, India’s government owns a measly 300-odd tonnes. The rest is in private hands: bridal jewellery in Godrej almirahs or bank lockers. And little of this hoard comes up for sale.
We take our women’s jewellery seriously. Selling your wife’s bridal baubles would be a last resort, a signal to society of moral and financial bankruptcy, deserving more social scorn than passing wind in a room full of prospective in-laws negotiating an arranged marriage. In Bengal, the tale that Rabindranath Tagore’s wife pawned her bridal gold to help her husband fund a university is the stuff of martyrdom even today.
But at today’s prices our greed for gold has evaporated. In February, India’s imports of gold were close to zero, down from 28 tonnes a year ago. In March, it’s the same story, no imports. Jewellery sales in the marriage season are expected to be low and a lot of bridal jewellery is mothers’ hoard, recycled. High prices have forced the world’s largest gold junkie to kick its habit.
Yet, reports hint that gold exchange traded funds (ETFs), pieces of paper whose value is linked to gold prices, are still pulling subscribers. Why are people buying paper gold when they can’t afford the real thing for their daughters’ marriages? Because speculators are buying the paper, when folks that really need gold can’t afford to. But who needs gold and why?
Historically, gold has been valued for adornment. Till about 500 years ago, it also had value as currency. But around the 16th century, paper currency started flooding the world, with good reason. Gold is very dense and heavy. A little cube of gold, measuring one foot on each side weighs half a tonne, about as much as a Maruti 800. Today this cube would be worth Rs 85 crore, but for that transaction nobody would lug a gold Maruti around. A weightless electronic money transfer would suffice.
In the 21st century, there are specialised uses of gold in tiny volumes for scientists working on fuel cells, or semiconductors, or heat resistant fabrics. Gold is inert, it doesn’t decay. A gold tooth filling made 5,000 years ago will fill your tooth today. It’s malleable, you can twist it to make any kind of shape, something jewellers have known for ages. These properties make gold interesting in the labs. But researchers in labs don’t set the price of gold. Who sets the price of gold is a story with a beginning and end.
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