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India's Changing Gold Culture

September 28, 2014

India has been the world's No.1 gold buyer for thousands of years. But traditions are changing...

TODAY marks the last day of Shradh, writes Adrian Ash at BullionVault, the period of "closed observance" on Hindu calendars when it's deemed "inauspicious" to start new ventures or make new investments.

The end of Shradh has a political angle. Also known as Pitru Paksha, the early autumn shutdown has been used to delay nominations for upcoming elections, reports The Times of India.

Fighting such "superstitions" can be dangerous. Rationalist campaigner Narendra Dabholkar was murdered in summer 2013 when pushing anti-superstition laws. This summer's delay to India's electoral process has angered many who want to reduce what they see as the stifling (and corrupting) effect of India's deep culture of religious observance.

Gold looms large in that culture of course (and also in India's huge bribery and corruption culture). The peak demand season in the world's heaviest consumer market starts now, running on until Diwali at the end of October. But long term, many analysts think the wider availability of luxury goods in India will dent India's gold demand, overcoming superstition where rationalism cannot. Many financial services providers think the same of their products...from bank savings to stock-market funds.

India's younger citizens are indeed breaking with tradition over gold, suggests this story on Mineweb. But not how Western observers might expect. Instead, some younger people have broken Shradh to buy gold at the recent low prices.

Forecasts of Asian households "substituting" out of gold into hi-tech consumer goods and packaged financial services are as old as the global bull market in gold, if not older. But they've proven very wrong to date. The only thing to dim India's appetite for gold has in fact been government anti-import rules...imposed because 2013's demand was so huge in response to the price slump.

India's gold industry is finding ways around that...literally smuggling gold in "through the backdoor" (ahem) as one expert analyst joked to me last week. News today also says the old VAT round-tripping scam...where the same metal is imported and then re-exported in a loop to earn sales tax rebates illegally...has found a new use, helping get around India's strict and stifling 80:20 rule.

Ancient Rome's Pliny the Elder started the trend of European commentators calling India the "sink of the world for bullion" more than 2,000 years ago. Can that culture, and the flow of metal West to East it has demanded for so long, ever be changed by flat-screen TVs or iPhones?

Keep a close eye on how India's demand...and the floor it's clearly helped put beneath gold prices to date...develops as Diwali investing, gift-giving and temple offering draws near in 2014.


(c) BullionVault 2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.


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