Expert says: Money spent on gold is practically wasted

Regular readers of this blog know I watch reports from Vietnam as an indicator of how Governments deal with large flows of money out of fiat and into gold. Non-first world countries feel this more I think and thus they give us a view into the future as to how first world countries will respond when they get hit with a real loss of faith in the ability of fiat to hold value over time and/or a view that there are few productive investment opportunities in the economy.

This Mineweb article on India raising import taxes on gold and silver has some interesting quotes in this respect:

“…this hike will discourage imports … that is what the government wants, since imports have made a huge dent in India’s growth story and growth seems to be flagging”

“The shift away from financial savings to something which will just lie in lockers around the country could be a large contributing factor to lower growth…”

“Another expert with a nationalised bank pointed out that money locked up in the yellow metal effectively disappears from the economy to become jewellery or sits idle in cupboards and bank lockers.”

“Money spent on gold is practically wasted and it is also excluded from the financial intermediation system. Imports needed to be curbed.”

“The massive jump in gold imports has also led to an increase in current account deficit.”

No surprise that most of this plays on the “gold is useless” meme. In actual fact I agree with that. One’s savings are better invested in productive businesses and entrepreneurs rather than an inert metal.

However, what the financiers, technocrats and politicians don’t get is that movements into gold are a clear signal or vote by savers that the economy is crap. The solution is not to block the signal, but to solve the underlying problem. Actually the way to solve it is to get out of the way and stop fiddling with the economy but that would put them out of a job I suppose.

What these guys are doing is taking painkillers so the pain in their chest won’t bother them. Then they’ll all be surprised when they get a heart attack. Indeed, money flowing into gold is painful. That’s the point.

1 comment to Expert says: Money spent on gold is practically wasted

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