Even though the global gold average price is suddenly dropping like a brick, there is renewed interest in precious metals originating from India. Thanks to the new governmental decree that makes several banknotes virtually worthless, investors and consumers are looking for other solutions. For now, that sparks an interest in gold and, perhaps some day, in Bitcoin as well.
India Goes Big On Gold Despite Declining Value
When trying to invest in so-called “safe haven assets”, there are very few viable choices these days. Government bonds and stocks are not all that appealing anymore, and foreign exchange investments are a significant risk. Gold, as well as other precious metals, remain a fan favorite, even though the margin for significant gains is shrinking rapidly.
Just a few days ago, the Indian government decreed that large rupee banknote denominations are effectively useless in the country. Additionally, it made the vast majority of currency in circulation in the country illegal, which is quite a worrisome development. It is understandable that the government wants to clean up corruption, but this may not be the right way to get things done.
Hardly anyone was surprised to see residents flock to gold almost immediately once the news broke. Gold shops are plentiful across all of India, and people were willing to pay premium prices to get rid of their rupee savings. Some people even paid over US$2,250 per ounce, which is almost twice the current market price.
Despite this sudden interest in gold by Indians, the future of the gold price is not looking all that great right now. In fact, gold futures are dipping well below the US$1,300 mark, which is somewhat surprising given this week’s turn of events. Then again, the price of gold is always in motion and seems to recover rather quickly most of the time.
Although the banning of these banknotes is a push to end corruption in India, the adverse effect is already noticeable. These “illegal” bills can still be redeemed for just 70% of their face value, which goes to show how broken the financial system truly is. Moreover, places where these bills are still accepted for their real value, such as train stations and hospitals, are turning into illegal currency exchange spots.
It is doubtful whether the Indian market will recover anytime soon. The surge in gold demand is a way to hedge against future instability, but with the gold price dipping, those efforts seem somewhat futile right now. If those people had purchased Bitcoin for the same amounts, they would either be breaking even or making a slight profit already.
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