Indians Are Selling Gold - Is Their Thinking Right?

The current strength of the gold price is leading to a massive gold sell off in India as holders of the precious metal cash out at high prices. Are Indians right to be selling their gold or should they be holding on?

This January the Bombay Bullion Association reported that gold imports plunged from 14 tonnes a year ago to just 1.8 tonnes because dealers can buy all they need from the scrap jewelry market. Local traders said they have people queuing up down the road to sell gold.

Indians have a strange habit of behaving rationally and buying cheap and selling high when it comes to gold. They were big buyers as prices tumbled last year. But have the smaller sellers got it right this time?

Double-top?

It could be that gold is about to form a double-top and will tumble after repeating its March 2008 high. A correction from a heavily overbought market is certainly possible with the emerging consensus among expert analysts on the all too numerous TV slots about gold a worrying sign.

However, a short correction might be followed by an even larger rebound and those selling now could feel clever for only a short period, and then be counting their losses.

On the other hand, the news about the global economic recession is not getting any better, and fears about bank nationalization are prompting a shift of wealth into precious metals.

These new holders of precious metals comprise billionaires and global central banks, and should likely far outweigh panic selling by the masses in India.

Inflation protection

Indeed, the poor are going to be ripped off by the rich once again as gold soars in price to an inflation adjusted high of $2,400 before moving upwards into bubble territory of $4-6,000 an ounce.

It is quite clear that we have not seen the end of the stock market sell-off in this bear market, and as stocks move lower over the next six months, it is surely likely that at least some of that money will end up in precious metals. Not bonds, which will shortly be decimated by a tsunami of inflation courtesy of the multiple global bailout packages.

History might repeat itself, but global economic circumstances have changed since last March’s gold price fall, and any price weakness should be seen as a buying opportunity. The Indian masses have got it wrong!

Comments

[Conan the B...:]

User224899: The Indian population has not been wrong for over a year. Gold was priced in USD today at almost exactly where it was 12 months ago. In 2007, once gold breached $850, Indian Weddings (the Primary Use for Gold in India) stopped using it. Platinum and then Palladium were recipients of their attention.

But It is around 20% higher in Terms of their Own currency, then it was then. They are unloading.

Early Last year, the population did not do the selling in India. The shops were returning unsold Scrap. Indian Weddings had become too expensive to use gold, $35K for the Brides alone. They did not buy, Scrap a plenty., return for recycling.

This year, with their economy in shambles, they are doing the sensible thing, the shops did not order, did not have to order. The population is doing the selling,To them gold is around $1200.

If the stock market rallies with the Financials, as I expect it will, The Fear Factor will be temporarily alleviated. Gold will drop with the introduction of new supply via scrap not only from India but from the populations of all those nations whose currencies have depreciated against the USD.

Gold has gone up from $700 to $1,000 for us. In India and elsewhere, it has gone to $1,200 or higher.

There was another SA article spelling out The All time Highs being hit in other currencies.

They have problems, need money, All Time Highs, Up 70%, sell.

IMO

Feb 23 09:38 AM

[raytayzmd:]

....look at the bright side Pete, the UAE is going to bail out the Dubai real estate market:

online.wsj.com/article...

...maybe YOU won't have to sell any of your gold to buy food!

Feb 23 09:47 AM

[logicalsinger:]

While your prophecy may turn out to be correct, there is little analysis in this post. You present rising inflation and a continued bear market in stocks as foregone conclusions instead of arguing why events should unfold in this manner.

BTW the poor are never ripped off by the rich. Since they are poor, they have nothing to rip off. Maybe you meant the middle class...

Feb 23 09:48 AM

[Jake Berzon:]

I envy people who have such perfectly functioning crystal balls that they can unequivocally state how much the various assets are going to be worth at "some" time in the future. Does your crystal ball also tell you that "some" countries will return to the gold standard?

Feb 23 09:57 AM

[sdavid0419:]

Hey, if the Indian's bought it cheap what's wrong with a little profit taking? They can only wear so much jewelry at a time and that is what they purchased it for. Me? I don't wear jewelry. I have taken a small profit on each cycle and repositioned back in at the lower price. With Obama spending billions he don't have I can't risk profit taking at this time as it is inevitable that there is a huge upward movement in gold that may have already started on the day the give away bill was signed.

Feb 23 10:06 AM

[ibejack:]

I wouldn't be following trends from India. Maybe in about 30 years i will look to India for answers but not at this time.

Feb 23 10:26 AM

[Vuke:]

Peter:
You've drawn a lot of conclusions from one news report which, considering the source, may have had a bit of bias attached. Wasn't it Aristotle who said: "One swallow does not make a summer, neither does one fine day".

Given the massive financial shocks hitting the world of course there are times people sell their gold or their gold stocks. They have to in order to cover losses elsewhere. But, given the flat-out race to print new currency everywhere gold prices appear to have only one direction to head.....

Feb 23 11:00 AM

[GMiki1:]

Hey, I sold 7 ounces last year at $866--ounces I'd bought at $400. I needed the cash. That doesn't mean we've hit the top. I don't think so in the least. We may consolidate here--a lot of the gold analysts think so--before we go forward. I'm sure that for every person selling in India, someone else somewhere (such as in Eastern Europe) is buying. The Indians may be buying silver. They definitely are price sensitive.

Feb 23 11:12 AM

[Mad Hedge F...:]

Gold’s upside breakout through $1,000 on big volume last week is creating a lot of chatter among the trading classes. Historically, investing in gold came at a big opportunity cost because it didn’t pay interest or a dividend, and you had to pay the cost of storage and insurance. With short term Treasuries now yielding zero, this opportunity cost is now, well, zero. There is a new profusion of gold proxies trading on financial markets where you can open an account for free, eliminating all other costs. I found five listed gold futures contracts with 50 and 100 ounce specs, and six traded gold ETF’s worth $32 billion, like the Market Vectors Gold Miners (GDX) traded on the NYSE. For the past year there has been a nearly perfect inverse correlation between gold and long Treasury bonds. Does this make it the new deflation play? No matter how inflationary the long term impact of Obama’s programs may be, the fact is that everyone is staring at deflation on the plate in front of them right now. And let’s face it. Investment in any other instrument, be it in stocks, bonds, commodities, currencies, and real estate, pretty much sucks right now. Finally, take a look at the charts for two leading gold stocks below for Peter Munk's Barrick Gold (ABX), the world's largest gold producer, and Newmont Mining (NEM), and see how they anticipated the barbaric relic’s recent up move. The only thing missing from the bull case for gold is a collapsing dollar. Could that be the next shoe to fall? Many believe that a retest of last year’s all time high of $1,050/oz is a chip shot, and a move to the inflation adjusted all time high of $1,500/oz is doable.

Feb 23 11:26 AM

[Siddharth:]

We Indians are gold accumulators. I have gold handed down by my grandmother to my mother to my wife. Normally we buy Gold every year around Diwali or for marriages. Most of the Indian marriages have a large amount of Gold given to the Bride - between 200 gms to 1 Kg. We have been through many periods of insecurity, foreign occupation & inflation to understand the value of Gold. A much richer, bigger, powerful nation is feeling insecure & its citizens buying up Gold. Obviously when the economy of the worlds most powerful engine is on the verge of collapse a 5 or 10 percent price differential is no big deal. But for us who have accumulated gold for years there is no harm in booking a bit of profit. Nice to see Americans realize that Gold is a natural currency. Happy Buying.

Feb 23 11:42 AM

[silverwood:]

Siddharth, good post! Nothing like hearing the news from the horse's mouth. Gold just recently made an all time high in Rupee terms. Looks like you Indians have got it right buy low and sell high.


On Feb 23 11:42 AM Siddharth wrote:

> We Indians are gold accumulators. I have gold handed down by my grandmother
> to my mother to my wife. Normally we buy Gold every year around Diwali
> or for marriages. Most of the Indian marriages have a large amount
> of Gold given to the Bride - between 200 gms to 1 Kg. We have been
> through many periods of insecurity, foreign occupation & inflation
> to understand the value of Gold. A much richer, bigger, powerful
> nation is feeling insecure & its citizens buying up Gold. Obviously
> when the economy of the worlds most powerful engine is on the verge
> of collapse a 5 or 10 percent price differential is no big deal.
> But for us who have accumulated gold for years there is no harm in
> booking a bit of profit. Nice to see Americans realize that Gold
> is a natural currency. Happy Buying.

Feb 23 12:24 PM

[IronMeteor:]

Why do posters here quote gold analyst. Are these fools any smarter than equities or bond analyst. No!, its usualy the same person who was transferred to cover commodities as they were hot and stocks not. So please give me your opinion and not the idiot analyst. They only know one thing - recommend what's going up.

If the purchases of the wealthy can out way the sales of the middle class, then gold can climb. Make no mistake about it though, the middle class of every country are really in a bind and will continue to sell jewelry for cash. This is the one thing could limit a rally.

Now If the US sinks into a real depression, like many here predict, gold is dropping a lot. I could care less about printing money and all that BS. The middle class selling all their gold (Jewelry, GLD, Coins) will overwhelm demand. I own a decent amount of gold, if I lose my job I will have to sell no matter what the price. That's reality for me, maybe for the Indians too and many others.

Feb 23 08:35 PM

[mr freddo:]

With Gold approaching new highs and energy costs dropping like a stone, I like GDX. Gold mining companies should be reporting some positive earnings surprises this year, especially if gold continues to climb.

Feb 23 10:58 PM

[Mr. Ed, Jr.:]

I would expect our local news team to be right on top of this....

"India's poor selling their gold. Film at 11."

I do not get any Indian TV stations, so I don't know why they might be selling gold, while we seem to be buying here in the U.S. and many other countries around the world.

Perhaps if we asked them a few questions....

Are India's banks about to be nationalized ? Has their government blown trillions of dollars propping up dead banks and something called AIG and having not 1, but 2 dubious stimulus packages within a year ? Is their housing market collapsing while their government treasury department runs the printing presses 24/7 ? That should do, for starters.

Feb 24 01:46 AM

[ROLEXDAYTONA:]

I see the more GC goes down, the more bugs shake, as for them it is not like for a futures trader who can buy/sell gold 100 times a day for 1$ fifference (100$), the bugs have their gold/silver mining stocks at stake and still are 50% below highs of 2008, so when GC will get hit, such investors will be hit the most and all their stocks will melt like snow.
As I said, GC will never break 1030$ again, till now I was right.

Feb 24 10:30 AM

[traderstraffic:]

This is a Manipulated market, this market will do what ever the higher powers wish it to do, no one is right, all you can do is speculate what the higher powers will do. Compare the high in 1980, the economy, and everything else, gold should be at 3,000 ounce. Manipulated market, why play another mans game.

Feb 24 10:48 AM

[Marc Courtenay:]

As Peter did mention, everybody and their cat is talking about gold, touting gold and hardly ever mentioning silver. The market manipulators love it when the masses are myopic and they can do a "plunge maneuver". Buying low and selling high is going to be everywhere over the next few years. Ironically, it might be oil and natural gas that will be the best performer between now and 2012.


On Feb 23 09:03 AM User 359637 wrote:

> The people selling gold in India are far from poor. Poor people own
> very little gold and they tend to keep it whatever the price. Indians
> are a far more optimistic bunch than North Americans. They see cheer
> where Americans see doom and gloom. Maybe the sellers of the gold
> are plowng the money into the Sensex or the high interest savings
> account that India offers?

Feb 24 03:07 PM

[Hmm?!:]

I am a gold fan, but I understand any criticism. I was hoping to get some fundamental numbers.

Timing and patience are the tough parts for me.

Feb 24 03:30 PM

[Socialist R...:]

Indians will sell now to wait for the next correction to RE-BUY at perhaps $600-$700 again.

"Gold and Dow Jones Industrial Average will "pass by" each other when they are both at '3000' "

Feb 24 06:51 PM

[silverfox:]

I just sold my Yamana Gold (YRI) on the tsx.
I puchased some last summer at CDN$13.00 AND SOME AT CDN$4.50
My reason for selling is two fold
1: I believe Gold is ready for a temporary correction.
2: If i am wrong i will take my profits & buy large cap Canadian oil
companies that are in the basement right now.
I do not use a broker or financial analysist just trade myself and through all this doom & gloom i am dowm 9% to date.

Feb 27 01:57 PM