The Indian government’s gold folly

India has a history of gold ownership, spurred by long-term experience of a weak rupee. Only a fool leaves rupees on deposit, because they usually buy less and less every year. Alternative stores of value, such as equities, have only entered the mainstream on the back of the economic boom, and their performance on the whole has been nowhere as good or certain as gold.

 Since independence gold has been the best store of family wealth by far. Today’s grandparents were buying it at 170 rupees to the ounce in 1965, and since then there have been festivals, children born, children married and grandchildren as well. The responsible family patriarch has saved for his family’s wellbeing and future, and gold has been central to his savings. And what a wise man he has been: gold today is about 75,000 rupees an ounce, having gone up 440 times in his lifetime measured in rupees.
He knows something Westerners do not: the rise in the gold price is due to the currency going down. And so long as the currency goes down, it makes sense to continue to accumulate gold to ensure family savings retain their value. Nothing else gives this protection, and the price paid today or tomorrow is a secondary consideration.
Governments don’t like this mainly for ideological reasons. They don’t like the idea of some people getting rich from doing nothing. Furthermore, they are in the business of transferring wealth from savers and workers to pay for political objectives and also to assist their favoured pressure groups. As well as getting its income legally through taxation, governments print money. Printing money devalues the purchasing power of people’s earnings and savings without them realising what is happening. The benefit of gold ownership is that it protects people from this hidden tax of monetary inflation, which leads over time to a lower and lower currency. And the lower the rupee goes, the greater the reasons to buy more gold.
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