Things That Make You Go Hmmm... Like India's 'Gold Refuge' From "The Establishment"

Tyler Durden's picture

India's love affair with gold is well-understood in Asia but completely misunderstood in the West — a phenomenon we have always found fascinating — but recently, as Grant Williams exclaims, it has become abundantly clear that this disconnect is widening almost daily as the Western fixation with 'The Gold Price' and the Eastern obsession with 'The Price of Gold' take ever more divergent paths...

After the recent frenzied activity at the Reserve Bank of India (which, if it had taken place in the USA, would absolutely have been labeled "The War on Gold" by CNN) as they tried every means possible to stop Indian citizens from buying gold (something I documented in "Never The Twain", TTMYGH August 27 2013), I set about thinking why it is that attitudes in the opposing hemispheres are so different regarding the yellow metal.

As I ruminated, a good friend of mine, who has forgotten more about gold than most will ever know, pointed me towards the Hindu Business Line; and there I stumbled upon a couple of pieces by S. Gurumurthy which, rather conveniently, do a lot of the heavy lifting for me.

In the first piece, entitled "Gold: Villain or Saviour?", S. tackles the stark disparity between economists' views of the "barbaric [sic] relic" and the views of the ordinary Indian citizen. And he does so beautifully:

(Hindu Business Line): Modern economists and the Indian people seem to operate on two different paradigms with regard to gold. In the modern West, gold is more a state asset than a private possession. Gold constitutes just three per cent of family wealth there, but a third in India. Western states, socialist or capitalist, expropriated all private gold during the last century. Even the liberal US outlawed private gold in 1936 and built official gold reserves of over 20,000 tonnes by 1950.


Modern economics views gold as an uneconomic, wasteful, private investment. But traditionally, in India, gold has been the preferred asset of the rural masses who hold 70 per cent of the nation's stocks. Indian gold habits clearly mock at modern economic theories.

So far, so good. Now at this point S. begins laying down a few facts and figures, and as he does so, the clouds surrounding the question of how important gold is to the average Indian quickly start to evaporate:

Market Oracle, a UK-based market analysis and forecasting online publication, captures the relation between India and gold thus: Indians own 20,000 tonnes of gold worth $1 trillion — almost half of India's GDP. For Indians, gold is not just money or asset; it ensures the financial security and stability of families. It has religious overtones. More than a commodity or money, it is integral to the warp and weft of family life. Investments in gold and jewelry are indistinguishable. Jewelry is the working capital of families; families collateralize it for commercial borrowing.


Some 13 per cent of Indian families, more from rural areas, borrow against gold as collateral; while rural India borrows from the unorganized financial sector, urbanites access bank loans.


The authors of Market Oracle seem to understand India's family-gold nexus better than Indian policymakers. Yet, despite such a paradigmatic difference, economic laws on gold based on the Western experience are continuously being tried out in India. Result: the establishment hates what the people love.

Do Indian policy makers not understand "India's family-gold nexus"? Of COURSE they do — but gold is the only refuge from inflation for the Indian population; something that just isn't acceptable to "The Establishment", because India's national debt has been run up by politicians amidst a corrupt and totally inefficient bureaucracy, whilst Indian citizens have patiently and painstakingly accumulated real wealth a gram at a time over many centuries. They are not about to give that up.

The Reserve Bank of India (RBI) set up a working group to investigate what every one of its members already knew instinctively (yet more taxpayer money being put to good use), and the conclusion they reached after a year's expensive extensive study was this:

(Reserve Bank of India): Demand for gold appears to be autonomous and a function of several influences and factors in India and may not be strictly amenable to policy changes. Supply of gold, through organised channels can be constricted, but buyers may take recourse to unauthorised channels to buy gold. The share of banks in importing gold has already been on decline over the years. Since it is difficult to vary the demand for gold the policy focus will have to be directed to (i) design and offer gold investors, alternative instruments that may fetch positive returns with a flexibility of liquidity; and (ii) increased unlocking of the hidden value locked in idle gold stocks through increased monetisation of gold. In this context encouraging gold jewellery loans from Banks and NBFCs, ensuring customer protection of borrowers and changes in the practices of NBFCs is desirable.

Brilliant! Welcome back, Captain Obvious!

Seriously, though, this is perhaps the most ludicrous government-funded study since US$3 million was spent on helping the National Science Foundation study shrimp running on a treadmill (no, really).


Westerners aren't used to the kind of inflation levels, government confiscation, and currency volatility so common in places like India; and so the need to own gold as protection isn't fully appreciated in the West.

Westerners pay lip service to gold's being "an inflation hedge" or "a currency" or "a safe asset", but these terms are used in an extremely abstract way by the vast majority of the investing public, who see gold as mostly just another trading vehicle. Yes, there are Western investors who have a deeper understanding of the reasons for owning physical gold, but they are a tiny minority.

In short, Asians like their gold to be heavy, shiny, and made of ... well, gold.

This massive disparity in appetite for "placeholder gold" is just one side of the coin, however; and India is just one of the Eastern countries that has been soaking up copious amounts of physical gold in recent months.


That is a twelve-fold increase in bullion traffic between the primary vault in London and the major refineries in Switzerland.


Now, we don't know with absolute certainty where that gold is ultimately bound — but we know it isn't Switzerland. If we throw into the mix the widely covered movement of gold into China through HK, a picture begins to emerge of an incredible wave of physical metal heading from West to East, even as the price continues to languish.

One of the primary sources of supply in this steady transfer of physical bullion has been the GLD warehouse. I've touched on the subject of the incredible vanishing ETF gold holdings before, but it's worth revisiting the phenomenon and reminding readers of a chart I included in the July 16th edition of Things That Make You Go Hmmm..., entitled "What If?":

The gold in London is heading somewhere — and it's heading there via Switzerland, by the looks of it.


The chart below shows seasonal gold price performance since 1969. (Although the data stops at 2010, so that there are a couple of down years missing, the pattern is the important thing here.) I have laid the chart out from September to August to better illustrate the phase we are moving into.

October has traditionally been the weakest month of the year, while November through January has been the strongest period:

So, how does this all play out?

Well, I've been watching this situation unfold through most of this past year with an increasingly bemused look on my face, because the numbers just don't add up. But so far, despite clear evidence of massive demand for physical gold, "The Gold Price" has continued to trade poorly. However, the longer this situation persists, the more definitely it will resolve itself; and it's very hard to see how that resolution ends in anything but higher prices.

Demand levels from Asia continue to soar while production increases just a couple of percent each year; and leaving aside Indian festivals and increasing central bank purchases, the fiat alternative to gold bullion — the US dollar — is coming under renewed pressure in the wake of the Taper That Never Was and the appointment of Janet Yellen as Ben Bernanke's successor.


But, like the infatuation America had with the Monkees in 1967, this fascination with the fiat dollar will prove to be nothing more than a passing fad; and one day — perhaps soon — the citizens of the West will, like their cousins in Asia and the Indian subcontinent, realize that there really is no alternative to sound money.

The only problem is, when the realization finally dawns, where will all the gold be?


Full Grant Williams letter below:

TTMYGH - Let It Be Fiat Monkees & Golden Beatles.pdf

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moonstears's picture

One gram gold bar and a "Squishee", please, Apu!

Groundhog Day's picture

Those Barbarian hoards with their barabric relics, so uncivilized.......It must be tradition.


Peter Pan's picture

What is mind boggling about the average Indian's love affair for gold is the fact that their average earnings are a lot lower than those of us in the west.

This truly indicates how blinded we have become by trinkets in the west and how well the Indians understand both history and government.

Urban Redneck's picture

20,000 tons in private possession is less than 1/2 troy ounce per person or about 15 grams.

DoChenRollingBearing's picture

That's not too bad considering how poor India is.  15 grams may be more than the median American has...

TwoShortPlanks's picture



" It might be possible, for instance, for an individual to have a second child or to fly a light aircraft 100 hours per year, but not both. Or one might decide to have an air-conditioned house, but if so, an overseas vacation might be possible only once every ten years."

And for "the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, [whom] will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests" here is an easy to follow video of exactly what to do.


Peter Pan's picture

On that basis even bankrupt Greece has more gold than even China has.

Personally I suspect that India has closer to 40,000 tonnes of gold in both private and temple hands.

quadcap's picture

This is an example of why averages are very misleading.   Most of the gold in India is held by the corrupt, politically connected, upper class.  The majority of Indians are poor and might have a bit of silver, but no gold.  

daveO's picture

Blinded by easy credit, dating back to the Sears card.

Manthong's picture

“national debt has been run up by politicians amidst a corrupt and totally inefficient bureaucracy.”


I wonder where they picked up that nasty habit?

TheGardener's picture

Since I hooked up to gold and gold only . I`m, Chandala.

I`m pure enough to drink from the swamps of conspiracy.

vegas's picture

It's pretty simple really; believe the bullshit of government fiat or have the shiny stuff in your hands. You gonna believe me or your lying eyes? Fiat currency is only good for wiping your ass, while gold always has been, and always will be a store of wealth. India's people understand this; their financial elite don't.

Peter Pan's picture

I respectfully beg to differ with your proposition that fiat is only good for wiping your ass. I have to much respect for my ass in view of the number of germs that fiat carries. Width also is a problem. Finally, Benjamin Franklin and George Washington deserve more repect.

bonin006's picture

Franklin maybe, but Washington deserves it for his response to the wiskey rebellion - sending troops out to deal with small distilleries that objected to paying twice the tax rate of his large distillery.

Quaderratic Probing's picture

Maybe Indians don't trust their bankers the way we do........

dark pools of soros's picture


That loss of confidence in the rupee has translated into an opportunity for bitcoin. Indian bitcoin client software downloads increased 17.23% in the third quarter compared with the previous quarter, according to digital currency and research firm The Genesis Block. In addition to bitcoin being an alternative store of wealth, the digital currency also allows people in India to send money offshore without having to clear intermediary banks.

Running On Bingo Fuel's picture

Yea I posted this out yesterday but everyone kinda missed the point.

The US was the first to network multiple computers, Darpa in fact, creating the Internet, and as such, petty arguments aside, owns the fucker.

If you think the chosen bankers are not going to seize this opportunity to be first adopters/owners you're coo-coo.

I present to you, your future money masters.


"Israel to become first cashless country."

From Israel National News: The government on Tuesday authorized establishment of a committee that will examine ways to eliminate cash from the Israeli economy – the better to prevent citizens from cheating on their taxes. The committee will be chaired by Harel Locker, director of the Prime Minister’s Office.

dark pools of soros's picture

so what..I'll profit and pay off my house in the process... you defeatist are waiting for what??

You are already controlled, and you cry about some wild horse that so far isn't really controlled, that yes, they will be controlled too..   you are a pathetic old beaten farm animal with no spirit



Running On Bingo Fuel's picture

Lies I tell you! For I have TEAM Spirit!

Go Team!


And a little hint for you, they won't be using bitcoin. I'm in no way antibitcoin bro. If that's the cart that you want to hitch to, GO!

Be careful, it is not endorsed, from any visible vantage point, to a major power like a central bank. But if Israel goes with Bitcoin, then we'll know who Satoshi Nakamoto is and maybe even ZH...

earleflorida's picture

george orwell (animal farm) "it's getting so that you can't tell the difference between the pig... than, from the human"  [sic]

Running On Bingo Fuel's picture

Just because I have team spirit and cheer for the team does not mean that my pants come off quickly! You're the pig thinking so Otter!


MeelionDollerBogus's picture

being an originator of a network prototype is NOT the same as being today's OWNER.
No control & no ownership is conferred.
The control is software & network lines.
The originator (DARPA) put the protocols to words & implementation - which has been duplicated & evolved every  year since  then.
That means what we use now is NOT the same as what came before, hardware, software or all the details of the protocol layers.
Your claim is as baseless as claiming that every thought & note we make is OWNED by whoever wrote the dictionary 200 years ago.
It's nonsensical.

Skateboarder's picture

Good article. I find the Things That Make You Go Hmm... series pretty well done.

When you associate gold with the gods, you have prosperity.

stacking12321's picture

additionally, you can't go wrong with an article that uses the phrase "warp and weft".

graspAU's picture

I'm not much for quoting this book, but I like these, especially the honest weights and measures. Seems to me that may be about exchanging things of equal labor value. Very far from fiat currency for items of significant value.

“And Abram was very rich in cattle, in silver, and in gold.”
-Genesis 13:2

“You must have accurate and honest weights and measures, so that you may live long in the land the LORD your God is giving you. For the LORD your God detests anyone who does these things, anyone who deals dishonestly.”
-Deuteronomy 25 15-16

“A false balance is abomination to the Lord: but a just weight is his delight.”
-Proverbs 11-1

“The LORD detests differing weights, and dishonest scales do not please him.”
-Proverbs 20-23

proLiberty's picture

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

From the last two paragraphs of Gold and Economic Freedom by Alan Greenspan. 1966.


Peter Pan's picture

That quote is not from Greenpan. That man died decades ago when he sold his soul to the company store.

proLiberty's picture

Compare Greenspan the brown nose follower of Ayn Rand with him while he was the Fed Head and now again that he is "retired" and hawking a book. Was he lying then or now? For me Gold and Economic Freedom is closer to the truth than anything he has said since.

Running On Bingo Fuel's picture

Yea those Gold guys on Discovery left Alaska and went to South America and what do they run into?

A bunch of Chinamen, on their way out after they stripped everything. Lol.

'merica #1.


DoChenRollingBearing's picture

The Chinese are crawling all over Peru looking for gold and other metals.  Just wait until the locals, burned before by bad (pollution) behavior from Canadian (etc.) miners get a taste of the water after the Chinese get done with it...

Carl Popper's picture

The chinese are huge racists. They treat african workers much worse than colonialists ever did.

Dont worry too much about the chinese taking over. No one likes them. You see there are three types of people, chinese, people who hate chinese, and people who have never worked under chinese owned companies.

akak's picture


You see there are three types of people, chinese, people who hate chinese, and people who have never worked under chinese owned companies.

You are forgetting about the Chinese Citizenism shitizen, whose roadside-crapping, dog-wokking, endangered animal-consumptionalizing nature is eternal, alas alas.

Running On Bingo Fuel's picture

DCRB, you don't know much about gold mining do you?

You use ground water in wash plants, or well water. No pollution is added, whatever is there is there. It would be too expensive to add in pollution.

Or is your grand thesis that China imports pollution then forces miners to mix the Chinese pollution into the wash plants in a effort to pollute the planet with China-Toxicity that Team America has to clean up at taxpayer expense??

I knew you were a Tyler.


Diogenes's picture

I don't know anything at all about gold mining but I know there are processes that use cyanide mercury and other toxic chemicals that end up being discarded.

chindit13's picture

I suspect you have never visited a Chinese-operated gold mine.  Lots of manual labor (perhaps refugees from bakeries?) hand-kneading mercury through the excavate in order to precipitate the gold.  The Au-Hg amalgam is then burned so as to drive off the mercury and leave the gold ready for the last stages of refining.  The fumes are....unpleasant.  Neither the EPA nor OSHA is anywhere in sight (please factor this, plus wages, and the lack of the corporate aircraft common to listed miners, into your "average production cost of gold";  you'll find the Chinese can produce an ounce on land that's 25-30ppm pretty cheaply).  Other Chinese miners use the cyanide recovery method.  Both pollute, both kill.  Cyanide kills more quickly, at least until sunlight breaks it down, while the term "Mad as a Hatter" makes a comeback as the effects of Hg-poisoning show up in the workers.  Toss in Minamata Disease and you get the picture.

Running On Bingo Fuel's picture

Let me explain this to you. In S. America and Africa the wash plant drops gold into the sluse box. It's water and gravity, cheap, efficient, and no bullshit. Chinese gold miners have a nose that can detect 50oz/yard soil from 60 kilometers away.

So quit you propaganda.


James_Cole's picture

Heap leaching is verrrrrry common (and very toxic) all over the world, I'm guessing you don't know much about mining.

chindit13's picture

Let me explain to you....

Well, better you just come see it.  You best bring your own water, because what's available locally is full of nastiness, courtesy of those Chinese miners whom you seem to respect, but about whom you clearly know nothing.  The environmental destruction caused by the carpetbagging Chinese got so bad that the locals took it upon themselves to start blowing up Chinese mining engineers and "bosses".

emersonreturn's picture

chindit 13,


thank you, your comments are always of interest.

DoChenRollingBearing's picture

Running On Bing...

LOL!  Believe me, I am no Tyler (or else perhaps one of my two potential articles (admittedly not good) would have been published).

At Yanacocha (Newmont and Buenaventura), there was a truckload of mercury that spilled into an Andean river causing hundreds of people to become sick, killing fish, etc.  The locals almost everywhere in Peru do not want gold mining done because of the bad histories of pollution!  My article below discusses this with a an editor of the Cajamarca (Peru) newspaper, near the middle of the article is where we discuss gold:

Gold mining is inherently a dirty business.  Environmental protection is expensive.  And my money would be on the Chinese doing a very bad job protecting Peru's environment...


And I have been to a gold mine where "they do it right" (in Canada):

James_Cole's picture

Mining is always highly destructive environmentally, some places a lot more so than others. Canada has a pretty mixed record, better than a lot of places.

The idea that open pit is inherently less destructive than undergroud is not true though, if anything would be the opposite.

DoChenRollingBearing's picture

Since Mr. Bing (Over.) writes that I likely know little about gold mining, I certainly will not quibble with you over this one, James (particularly because you might be right about open-pit mines).


MeelionDollerBogus's picture

EVERYTHING we do as a species is destructive environmentally because we use machinery & chemical industries.
If we lived off the land as other animals do there'd be little such problem. We don't & won't.

ebworthen's picture

The central banking hegemony of the West is desperate to eliminate tangible assets and enslave the masses in debt serfdom.

The kleptoligarchy wants every citizen dependent upon digital fiat in exchange for their servitude, not tangible assets.

ETF paper gold is one mechanism by which to manipulate the perception of Gold (to denigrate it).

A precious metals ETF is an oxymoron.

End Central Banking.

Diogenes's picture

Everybody in the whole world would be thrilled to bits to have some kind of money they could depend on to hold its value. Any government that had a stable currency could rule the world as the British did in the 19th century and the US did in the 20th.

apberusdisvet's picture

And there are still many among the clueless who believe that if the price of gold goes parabolic, the miners will produce 10 baggers.  Got news for you folks.  Should that happen it would certainly indicate a perception that all fiat was becoming worthless, and mining countries would immediate nationalize all operations within their borders, the better to have the only true currency.  BTW, Obama has done this already, giving himsekf the authority  to commandeer (i.e. steal) all assets in the event of a "national emergency", including your labor, dear slave.

DoChenRollingBearing's picture

+ 1

Your argument for buying physical gold vs. the miners is spot-on.

Pareto's picture

+1 FUCK I forgot about that Exec. Order.  See!!  Its so easy to forget (not keep track) of the cummulative erosion of rights that have occured in the last 6 years.  This was on another thread this weekend - how what we think we can still do, we actually can no longer do.  Fuckers!!

TaperProof's picture

The day we can't export our inflation the West will again understand why gold matters.  ...and that day is probably coming soon.

Peter Pan's picture

How true but how little we understand this great truth.

It will unfortunately be too late when the sheeple wake up to the fact that they have not only been fleeced but also been put in line for slaughter.