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Indians
who sold their gold in 2007 to buy stocks are now paying out the wazoo for
their gross misjudgment. In January of 2008, the Bombay Stock Exchange fell
by more than 4,000 points. It is now a full 8,000 points short of its January
8th peak,
while
gold is $70 higher than it was then.
Ironically,
on January 17th, the article Indians Sell Gold - and their
Future was published. The following day, the Bombay Stock
Exchange (BSE) lived up to its name and bombed from 21,000 all the way
down to 17,000.
The
BSE has never recovered.
It
most recently has desperately tried to cling to the 14,000-level in hopes of
avoiding further drops down to 9,000 and below - and failed, only to slip down
to 13,000. That's the same level where it was in November of 2006, twenty
months ago. At that time, gold stood at around $470. Now, gold costs nearly
twice as much.
Most
of the gains the Indian stockists enjoyed since then are now little more than
vapors in their memory. All of the gains of gold since then are still there. Maybe
diversifying into some stocks in addition to gold would have made better
sense - but selling gold for regular stocks?
Ouch!
They
should have known better.
Accompanying
the BSE on it trip down south are the hopes of Indian retail investors who
hoped to get rich off the BSE's until then prodigious rise. Riding along in
the passenger seat on that trip are the yearnings of Indian jewelers and
traditional gold buyers for lower gold prices.
What's
the lesson? It pays big bucks to ignore the siren song of the paper-pushers: "Come,
my poor peasant friend. Sell your clumsy gold and open a brand-new bank
account with us. Then, you can buy and sell Indian stocks through our
in-house brokerage service and support your country's powerful economy."
Now,
the gold is gone, and so is much of the money they sunk into their paper
stocks. What will Indians do? Will they return to gold?
In
June, Indian gold buying dropped to a third of what Indians bought during
June a year ago. They are still waiting for lower prices. Doesn't seem to be
happening. Lower than now, maybe - but lower than the $650/oz. in June of
2007? Forget it!
The
Future
What
willl the future bring? Will the BSE recover its erstwhile glory? Will it
return to outshine gold?
The
BSE's blue 50-day moving average has fallen way below the red 200-day MA, and
its descent is accelerating. Gold, on the other hand, has never touched its
own 200-DMA, and its 50-DMA rests securely above its longer term colleague
and has recently turned north again.
So,
will Indians return to their traditional gold buying habits, then?
, it
doesn't look that way. The stock market has further ground to lose, so those
unsophisticated enough to hang on in hopes for better times will be hurt even
more. Those who sell now or who recently sold their stock positions are
already hurting. The rupee is weak and looks ready to fall further against
the dollar, so that will make higher gold prices doubly unpalatable to them.
Quite
possibly, it will take massive across-the-board price inflation to steer
Indians back to the gold market, like the 25% inflation figures in Vietnam,
for example. Vietnamese have been the largest gold importers in Q1 of this
year - and that's in absolute terms, not per capita!
What
do the Vietnamese know that Indians don't - or forgot?
However
expensive Indians may perceive gold to be right now, it would be wise for
them to put whatever disposable income, cash (and stock) assets they have
back into gold. The rupee's fall makes holding cash unattractive. Equities
are falling and so are Indian treasuries due to high inflation expectations.
Gold
and silver will be some of the few things worth sinking money into - regardless
of price - because the price of leaving their money in falling assets is
obviously even higher. It only gets more and more expensive as time moves on.
Gold
is rising even without India's
traditional buying levels of approximately three times what they are now. The
Indian gold train is moving and pulling out of the station. The more speed it
gathers, the harder it will be to jump back on.
Hesitating
any longer will be more expensive than gold could ever hope to be. In fact,
logic would dictate that the more expensive gold gets, the more it will cost
those who decide to wait before they buy it - in terms of lost profits. The
same thing goes for all investors, of course, not only Indians.
Got gold?
Alex Wallenwein
Editor,
Publisher
The EURO vs DOLLAR GOLD-MONITOR
Just like driving your car,
investing only makes sense if you can see where you are going. The Euro vs
Dollar Monitor is your golden windshield wiper that removes the media's crud
of financial misinformation from your investment outlook. Don't drive your
investment vehicle without it!
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