Comment

I wish gold falls by 50% to Rs9,000 per 10 grams. Don’t get me wrong: I own some units of gold exchange-traded funds and have no plans to sell them in the near future. So, you may ask, I am “long” gold — and yet I wish that the price of gold declines by 50%?
Yes, that is correct. I want the value of my investment in gold to fall by 50%. Why?
Because if gold declines in price, it will mean that the world is a safer place to stay invested in. This means that the value of my investments in the stock market could appreciate steadily over the long term.

And since I have some 70% of my investments in stock markets, a price appreciation in stocks will offset the sharp 50% decline in the value of my relatively smaller gold holdings.
Well, the world’s central banks have behaved over the past few years, it seemed logical that people would lose faith in paper currencies and turn to gold.

But, yes, I should write why and how gold can fall to Rs9,000!

We make the choice
Let’s say there is an election in India next month and we are all asked to vote for one of two candidates. Candidate Dreamer tells us that — if we vote for him — we will all get free water, free food, free power, and free schooling. And to make his promises even more real and tangible, he promises us nice air-conditioned buses and trains to travel on — with a high degree of safety. And our taxes will be lower.

Candidate Realist tells us that — if we vote for him — we will have to pay more for water, more for food, more for power, and more for schools. And even after we pay more, he cannot guarantee that we will actually get all the stuff we paid for. There are too many people that need the government’s help and so those of us who have a lot — will get a little less.

And there may be fewer buses and trains for us to use, warns Candidate Realist. Oh, yes, everyday that you leave for work, hug and kiss your family as if it is the last time you will see them — there is no guaranty you will survive the bus and train rides.

And, just to ensure that you really cast your vote correctly, Candidate Reality promises you that he plans to increase taxes.

The efficient Election Commission organises the electronic voting machines for the 440 million votes that are cast. Guess who wins?

A vote to print money
So what does the new government run by Prime Minister Dreamer do?

They do what all politicians everywhere in the world have done for 40 years: they go about trying to fulfill some of their election promises.

But that is a costly exercise. And there are wars to be fought and borders to protect. And the salaries and expenses of the government bureaucrats to be paid.

But — as promised in the election campaign — taxes have been reduced a bit. So the government is spending Rs 100 and collecting only Rs 70 in revenues.

Every year.

From where does it get the other Rs 30?

Aha, the government is a magician.

It produces the Rs 30 out of thin air!

Actually, it is a monopolist: it has an agency called a central bank which owns something called a printing press which, when placed on special marked paper in special print with special designs, magically turns the paper into currency notes.

Year after year, decade after decade, country after country, continent after continent: every government in the world has resorted to allowing Candidate Dreamer to use the printing presses of the central banks to fulfill a false promise.

And every voter has been guilty of letting it happen — sorry, of wanting it to happen. Of wanting to believe in the dream and not accepting the reality.

So paper money — backed by nothing — circulates around the world and results in inflation.

The value of the paper currency is debased.

Gold, meanwhile, cannot be printed by a monopoly printing machine. You cannot create it out of thin air.

What do you think it costs the US government to print a billion dollar bond? Maybe $10 for the special paper, $10 for the special print, $10 for the watermark to prevent a counterfeit, and maybe $100 for the depreciation cost of the printing machine (they use it so often, they need to replace the machines very often!).

So, an investment of $130 gives the US government a $1 billion bond that they can give to China in exchange for $1 billion worth of stuffed toys and microwave ovens.
What a racket. What a scam. And the US has spread this lie that blondes are dumb!
And we think the Chinese are smart!

The Chinese (and other exporters to the US) just got conned into the biggest sting in the history of finance!

The point is, while central banks can print paper, they can’t print gold. They need to find it. Then dig it.

And there is not enough gold of it for all the Candidate Dreamers in the world to dig up every year.

And pay for all their election promises.

That is why gold has been a “store of value” over centuries. That is why when people wake up and realise how they have been conned into accepting paper, they move to buy gold.

That is why the Reserve Bank of India decided to buy 200 tonnes of gold for $6 billion. At what was considered a “peak price”.

And it may be the “peak price”. It may be the worst investment that the RBI has ever made. Because we, the voters, may finally have become smarter.

And now, the case for gold declining to Rs 9,000 for 10 grams:

We may finally elect Candidate Realist.

We may accept that we need to have less consumption — and more modest needs.
We may accept that we need to pay more for things that we take as our birthright. We may accept that promises eventually come back to haunt us.

That, as the economists say, there is nothing like a free lunch: what you get, you need to pay for.

Somewhere, somehow, it comes back to get you.

We all elected Candidate Dreamer and it came back to haunt us — via inflation and the declining value of every rupee or dollar or euro that we earn.

So, yes, I want us all to elect Candidate Realist.

Then the printing presses will not be needed.

Because the government of Prime Minister Realist will not be spending on any false promises. In fact, they will be collecting more from us in taxes.

They will no longer need to use the printing press.

So, yes, Candidate Realist’s election can be a turning point for gold prices. And I really hope he wins.

(The writer is a director at Quantum Advisors Pvt Ltd and Quantum AMC Pvt Ltd. Views are personal. )