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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: k.ramesh who wrote (2321)	2/21/1998 11:27:00 PM
From: LKO	Respond to of 9980

I have thought about this as well, why are Indians buying gold when everyone is selling it?, The answer, the non convertible weak currency stupid. If India ever has a completely convertible currency then Indians will ditch gold for interest earning paper just like everyone else. In the space of the the last 20 years the rupee has depreciated from 11 to the $ to almost 40$, In such a scenario, if holding $ is illegal and holding gold can be explained away as family wealth, what would you do? The Economics is not so simple. I would recommend some old PBS tapes of Adam Smith's "Money World" or "Economics USA" from your public library (or ...if you are old fashioned ... you can read a book :-)). These programs do a good job of explaining the basics of "gold value", "covertible currency" etc. Gold is an inverse measure of confidence in economy. In old days of relatively unmanaged freewheeling economies, it served as the anchor for wealth and California had its gold rush days. In the case of India, there might be cultural addiction to it (like US addiction to consuming oil/energy ?)...or maybe people still think economy sucks :-) though I would think they can invest in their own currency well enough even though stock/bond markets have a long way to go before achieving better transparency, better accounting and ease-of-use. Exchange rate affects ability to buy traded goods. In case of India, it probably like US imports its oil it might be affecting most goods. For a 40 year period, you have to look at domestic inflation rate of India and US to get any real idea of reduction in people buying power of traded goods. 12->40 in Rp also has to be compared with what a dollar could buy 40 years ago or now does...and change in traded goods. However, in general, a floating currency is better able to reflect economic competitiveness. In bad times it discourages consumption of imported products (high prices!) and rewards exporters of goods and services since they get better return than people who sell in local markets.e.g In days of oil embargo in US, price of oil promoted research/innovation to produce more efficient cars. Economics has too many variables and is complex even for experts which is why so many people are able to get away with being expert economists :-) Take care...

To: k.ramesh who wrote (2321)	2/23/1998 8:48:00 AM
From: Worswick	Read Replies (2) \| Respond to of 9980

Well thought out +K. I agree with your "inflation" premise about gold. When I first went to India in the summer of 1959 the Rupee was Rs. 3.60 to the dollar. Moving forward in the last ten years gold hasn't done so badly against the rupee either. People for a generation have said the "Indian fascination" for gold was silly yet all the naysayers may be proved wrong simply becasue with every government in the world printing moutains of paper money there are not mountains of gold. As for diamonds don't underestimate the "grease" that the diamond wallah's of Surat now have in the world financial community... then, take the Israli connection and add it all up into a new diamond paradigm. I have never been certain how beloved De Beers was with anyone. It will be interesting to watch if India finally opens her vast diamond prospects for real exploration and mining. I have always thought that the British interests "shuffled" India and were happy to keep Indian diamond prospects as a backwater -- as say, opposed, to their financial interests in the more docile anfd tractable South African fields controlled by Barnato and his deeply corrupt lackeys. My best,