Toronto: Gold Stands Bold. The ongoing decline in stocks and cryptocurrency and the poor yield on bank deposits have made gold a clear winner, who rules as a king of the global economy. Real estate is also left behind. Those who shunned the yellow metal now hold a docile basket of investments that fades before gold’s shine. Rightly said, “Never trust money more than gold”.
More gold has been mined from the thoughts of positive minds than has been taken from the earth. The Covid-19 surprise savings turned optimistic investors aspirational, and greed took over the semblance of sanity. Chasing the mirage of quick returns landed them with portfolios lacking sheen and shine. Gold, meanwhile, stands bold as it held its foothold like a rock and provided steady returns as a reservoir of value.
The yellow metal has attracted civilisations worldwide to symbolise purity, power, and accomplishment. Gold’s natural beauty makes it a mysteriously precious metal. It is a good conductor of electricity, does not tarnish or oxidise, and is highly malleable. It can be pounded and shaped without breaking. Gold has multiple uses, ranging from jewellery and coinage to infrared shielding, gold leafing, tooth restoration, computers and electrical devices. Being relatively rare in nature makes it all the more valuable. Gold is one of the few commodities that acts as a monetary asset. Many currencies around the world are backed by gold. Gold is effectively used as a haven asset in economic turmoil to preserve wealth. Most countries, including India, maintain reserves in gold. Presently 7% of RBI’s forex reserves comprise gold.
As of September 2021, there were approximately 31,695 tons of gold reserves.Top ten countries with the largest gold reserves (in tons) are: United States :8,133, Germany:3,359, Italy:2,452, France:2,436, Russia:2,299,China :1,948,Switzerland:1,040,Japan:846, India:754 and Netherlands:612 tons. The U.S also has the highest gold allocation as a percentage of its foreign reserves at 76%. Many central banks turned from being net sellers to net buyers. After sensing isolation from global financial markets, Russia has been the largest purchaser of gold for seven years, purchasing 274 tons annually. Russia has re-linked its Rouble to gold to boost its value and arrest the rouble value fall. A country that exports gold and has a surplus of gold reserves can often see an increase in the strength of its currency as it stands bold.
On the other hand, gold can also reduce the value of the currency used to buy it. If many transactions are made in gold, it can devalue the local currency and cause inflation. The value of imports and exports is highly connected to the country’s currency. If imports exceed exports, the currency declines. Gold reserves also help RBI counter rising inflation.
As per World Gold Council, the official Gold Reserves with the RBI increased to 754.10 tonnes in the fourth quarter of 2021 from 743.83 tonnes in the third quarter of 2021. Households in India have piled up another 24,000 tonnes of gold, becoming the world’s largest holders of precious metal. The World Gold Council estimates that the value of the holdings is worth $1,135 billion, more than 40% of India’s GDP.
The abundance of gold with the Indian public reinforces the potential of RBI’s gold monetisation scheme, provided it’s made lucrative and harnessed with better infrastructure. The gold monetisation bonds launched seven years ago haven’t generated the desired response. Mop-ups represent just 2% of the country’s annual consumption. RBI’s efforts to curb “non-essential imports” to contain the impact on current account deficits that pressure the rupee needs re-orientation.
Three steps are needed to harness the public holdings of gold to boost the GDP of the Indian economy to $ 5.0 trillion:-
1. Enhance the interest rate on Gold Deposits as the security is gilt-edged and readily saleable.
2. Exempt the interest earned on Gold Deposits with Commercial banks/ RBI from income tax.
3. All gold deposits for loans and investments be part of the assets of RBI, like cash held in the currency chests of banks. This would make Gold a part of the national asset, adding to the GDP.
The steps will encourage the public to deposit gold with banks and monetise it as an earner for the family rather than retaining it as a lazy asset lying idle in lockers without any income to boost the GDP.
Rightly said, “Share is the money of the stock market enslaved; Cryptocurrency is the money of the maverick marketeer; Silver is the gentleman’s money & Gold is the money of a king.”
By – Hargovind Sachdev
