Golden Ratios

China, it seems, wants to load up on gold. There is an aggressive retail push going on in China towards precious metals. In India, on the other hand, there have been appeals to buy less gold, use our forex for better things, turn out our gold hidden in bank lockers etc. As if we Indians will ever listen to that! The buying continues unabated. This is also in keeping with popular perception that Indians (and increasingly, the Chinese now) have a voracious appetite for gold. Pivoted around this idea, I ran some numbers to figure out gold reserves for the top countries, the amount of gold reserve coverage given the GDP size of each country and finally how much gold reserves exist in a country per person of its population. The latter is an interesting metric – it says that if all the citizens of a country were to line up in front of their central bank’s vault to receive equal amounts of gold, how many grams or kilograms would they get. The results for 41 top countries (by gold reserve holding) is shown in the chart below:

  • USA, with the world’s largest gold reserves drops down to 23rd place when compared to countries on gold per Bn USD of GDP
  • India and China, at 10th and 5th places drop down to 37th and 35th places when it comes to the weight of gold per capita! Clearly, we should buy more!!
  • Lebanon and Libya are pricing in their geopolitical risk by paying rent and holding charges for all the massive horde of gold that they have given the size of their economy.
  • Germany, France and Italy are very well placed. From where did they get all their gold, I wonder.
  • Canada’s position surprised me.

Golden Countries

So is there a trading play in Indian gold? I am not a goldbug enough to know. Goldbugs don’t know anyways. Maybe there is a 5% – 10% scope in gold in rupee terms that is possible now. Constant pressure on the rupee has kept the INR gold chart very subdued as compared to the USD price of gold.

The first chart below shows the daily price chart of a local Indian gold ETF over the last 18 months – on the charts, it does not show a set-up which gets me excited. On the longer 3 year chart with weekly prices, there certainly seems room but again, the present price does not scream a buy (to me).

Gold 3Feb16 18mo DailyGold since 2008 weekly

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About Kaushal
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