BULL in BEAR Market

Investment Learning
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The annual supply is 2% because at the current price of gold only 2% can be mined for a profit

If labour and fuel cost were zero a lot more gold would be mined. Even sea water has dissolved gold but the cost of extracting it is not profitable

This is what happened with pearls. When the only source was deepwater diving pearls were expensive. Or salt when the only source was mining

Its a medium to store wealth but not a generator of wealth. So we as India grow production/GDP and generate wealth and then store it in a medium produced by a foreign country. Its a huge loss for a country to lose that much GDP which doesn’t contribute to further increase the GDP

It generates wealth for jewellery makers but the making charges (revenue generation) are a very small percentage compared to the investment

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What about the gold loans that people take, one of the reasons some invest in gold? These loans generate good business for the banks, I see many advertisements given by banks before auctioning the gold, not to mention Manappuram and Muthoot who cannot do most of their business if not for gold. So gold to some extent is moving the economy forward, it is volatile and unproductive at times but certainly a safe haven when equity in in doldrums.

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Its a loan on your investment. Good business for Manappuram & Muthoot, very safe but generally you can take loan on your fixed deposits, LIC policies, house and almost anything literally that has value
I didn’t say equity is a safe haven or suggest the money from gold should be put into equity. Equity investment is not possible for everyone
A big portion of our GDP is quite literally exported at zero benefit by buying gold
The percentage ownership of gold for citizens of all developed countries is negligible !
It didn’t negatively affect their standards of living and the money probably went into building roads, houses, infrastructure and hospitals instead of being locked up in gold

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In Kerala where I live, most of the gold we possess are ornaments and these are very liquid in the sense that all the banks offer gold loan at competitive rates the same day.So in case of any short fall in cash due to some emergency, we can rush to a bank and get gold loan. If you have some land, you can get them at 4% interest. So the ease with which one can get a loan and the widespread use of gold while marrying of girl child are the reason that most people have some amount of gold with them. Moreover almost all the ladies and a good number of gents too wear at least a gold chain on a daily basis. Hence it is only wishful thinking that people will stop their entrenched customs in the foreseeable future. Old habits die hard.

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I agree Jose and unless government comes up with something like demonetisation for gold, gold usage will continue and increase
I find it interesting you mentioned marriage of girl, another area we are struggling, most countries both girl and boy bring equal amount of money into the marriage
We are 1.3 billion, assuming an average family of 5, thats 260 million families
Every Indian wants to own a little bit of gold, if we assume 50 grams gold with each family, what level of locked up capital we are talking about. Roughly 13 million kilograms of gold
If due to increase in wealth every family takes another 50 grams of gold, how much money is that tied up in unusable funds
When you have a marriage, you use gold but generally you end up buying more gold not selling the one you have or giving it away to the bride
Look up the largest producer of gold countries, they are very happy to sell every gold they mine, do you wonder why ?
And almost all of them are developed

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I think Ricoh India also had high promoter ownership and still the local management did fraud which the Japanese MNC did not uncover till the very end. My point was not that all MNC’s are above-board but by and large MNCs do show higher corporate governance standard than our local companies. At the end of the day, we have to do our due diligence for any company. But this sudden proposal 75% to 65% is out of the blue and if implemented many of the Nestle, HULs might go for delisting than dealing with the Indian regulators who keep changing the rules of the games.

I used to agree to this. But the rules keep changing every year. LTCG introduction without STT removal one year, delisting tax “loophole” being fixed, FPIs being taxed higher in the market now, 75% to 65% proposal etc etc . Though some of these don’t directly impact us retailers, but it creates negativity.

Anyhow it was a rant and lets close this discussion now. But we should keep in mind that this Government is not stock market friendly. At least I plan to diversify outside this country.

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Reason for not bringing gold demon may be due to past bad experience of gold bonds scheme. And VDS scheme. Where black money was used to buy gold and gold jewellery shown in VDS . Also how to set gold limit per household .? As per income tax stri dhan limit per ladies member is500 gms. So any household having more then two female member has 1000 gms official stridhan limit approx 35 lacs at present market value. . So easily any gold scheme or demon will get failed as people will take advantage of it and use it as turning black money in to official

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HUL’s foreign promoter shareholding is 67%, they are not going to lose much, so they will not delist.

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I could not find any information regarding the 500 gm limit , you mentioned.

Can you please give any links ?

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That is the end hidden goal of any Government to control Land, Gold and Capital so that all residents are dependant on it. If Gold did not have any value, all the central banks around the world would not be adding to their reserves.

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"MNCs have been consistent performers despite market movement. Data from Antique MNC 40 Index suggests it has given consistent returns over a long period of time and outperformed Nifty in the last 11 out of 16 years.

Over a rolling five year period, MNCs have outperformed Nifty in all years since 2006 with lower volatility and thus generating superior Sharpe ratio."

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Hi Edward - I was reading through your perspectives on gold and honestly it sounds interesting. I have a question towards the last part of your message ‘Look up the largest producer of gold countries, they are very happy to sell every gold they mine, do you wonder why ?’

Could you please through a bit of light on this. Any articles or just a few lines underscoring your reasoning should suffice. Just wanted to get the thought process here. Thank you

Cheers,
Matt

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New Budget Theme :grinning::smiley:

Taxation Theme : Invest in companies with TO < 400 crores that has got benefit from income tax change from 30% to 25% …

Lot of them are there : IEX, MCX, CARE , ICRA and many others …

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Hi Matt

I try to understand economics by simplifying it a bit
Lets say 100 people set out from Norway to settle in Iceland permanently
Initially they would want land during summer and storage during winter
Next they would also need tools to build houses and warehouses to stay and store grains
They would need tools and wood to keep warm
Some might be good at hunting and not farming so he could exchange meat for grains. Some might be good with making tools so he would exchange tools for meat and grains
To make tools you also need iron
To make rust proof iron you need zinc
Lets say one person is exceptionally good tools maker, such that his tools dont rust, remain sharp for a longer time than others.
A farmer or a hunter wont mind paying a bit extra for that tool. Some would advertise that their tools are better even if they are not. And some would be good advertisers and just take up that profession !
Once basic needs are met, Maslow says we will have a higher need for poetry, arts, even to show off our wealth
And all of these exchange would need a medium.
Lets say rocks are rare on Iceland so they decide this is something that is not easily available so we make it a medium of exchange.
The country is self sufficient and rocks being rare are in demand. The rocks themselves are useless
Now during one of voyages a Chinese reaches there and figures out he can buy 100 sheep for a piece of rock. Guess what he will do.
That’s really what money is - everything, bitcoin, fiat money, gold or salt

However I am aware gold does have industrial use and hence its a great hedge against inflation. But we as a country lose out so much because almost everything is imported. Our demand for gold will only keep rising because of traditions. In some ways it has encouraged dowry under disguise.
Every gold we import means some of our gdp is gone into investing into money that wont work for us.

Here are some of the top producers and users: https://www.providentmetals.com/knowledge-center/precious-metals-resources/world-gold-production-consumption.html

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When Warren Buffet was asked what he thinks of Bitcoin
He said its a currency and historically shares have performed better than currency
Such simplicity of thoughts !

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Hi Edward,
I don’t know why we have started discussing gold’s role as money on this thread. But I do find this conversation interesting, as it relates to bitcoin’s value, but for that we have a seperate thread.

As for the rare stone as money example, you may want to read about the actual historical example from yap island. https://en.m.wikipedia.org/wiki/Rai_stones

Rai stone were good as money because they were rare and difficult to produce, until European sailors set foot on the island. They were able to produce more Rai stones cheaply using explosives, a technology not available to Yap island residents. The result - the wealth of the island residents got transferred to European sailors.

The same took place with some African countries, which used glass beads as money. It worked well because these beads were rare and difficult to produce, until Europeans who have access to better glass technology reached there. The result was gradual transfer of their wealth to Europeans as they can obtain useful goods for cheaply produced glass beads.

So the commodity used as money must be carefully chosen. The additional production of that commodity transfers the wealth of commodity holders to its producers. One reason for transfer of wealth from India and China to Europe was because for some time we were on silver standard, which is easier to produce than gold. It is not by accident that the world eventually settled on gold standard, as gold remains difficult to produce and its fresh supply relative to existing stock is small. But that may change in future, by say, it becomes easier to mine asteroids.

Ofcourse now we live in the world of fiat currencies, which initially started as convenient means to exchange gold kept in bank vaults. To some extent their value is still backed by gold reserves central banks maintain. So gold still remains a valuable commodity, and I do not view people trying to preserve their savings in gold as bad. Yes, they have the option to keep their savings in fiat, but paper currency is easy to produce, and everytime central banks print more they expropriate the wealth of those saving in their fiat.

In comparison, bitcoin supply is rigidly fixed, and being digital, it can be an even better store of value than gold. If that happens, there will be a transfer of wealth from those holding gold or fiat (partially backed by gold) to those holding bitcoin. That is what will drive the bitcoin’s gains.

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Interesting insight …Thanks for sharing.

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Divyanshu

I think the central reason why we have bear and bull cycles is due to increase or decrease of money entering into stocks. There is only limited real money and the state uses different policies to increase or decrease money in circulation which directly affects what money enters or exits the share market.

On Gold, for an individual Gold is an excellent hedge against inflation of fiat money however as a nation we are transferring huge amount of wealth to the nations that mine Gold much like the Europeans in your excellent example did to yap island and to the African countries that used glass beads as money.

But not just gold, anything that is not paper money can provide the same level of protection against paper money. Quite frankly even an ETF/fund that tracks gold prices provides the same level of protection however there is inflation right now in gold. The cost of mining gold versus the cost of mining platinum say is a ratio of 1:1.2
So every 100 grams of gold to mine costs say for argument sake 100 Rai versus every 100 grams of platinum to mine costs 120 Rai
Add the companies profit of 20%, you should be able to buy gold at 120 Rai and platinum at 144 Rai
This ratio has changed over the years which means there is inflation built into gold or that we are transferring more wealth to buy gold than we should

Ps:On bitcoin, I’ll discuss on that thread

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