Diwali, Lord Rama, and the Return of Gold from Exile

By J.P. Cortez*

October 19, 2017 marks an important holiday in the Indian culture. Diwali begins.

Diwali is one of the biggest festivals for Hindus, Sikhs, and Jains. It is a lavish celebration of the victory of light over darkness with its gleaming candles, luxurious works of art, and opulent feasts. Diwali is also characterized by gift giving. Buying and gifting gold is considered auspicious during Diwali.

Given the nature of the holiday and the number of people who celebrate it, according to CNBC, the past few years have seen a tendency for the gold price to rise around Diwali. Last year during Diwali, Mihir Kapadia, founder & CEO of Sun Global Investments, said “As heavy consumers, the festive seasons always tend to surge the demand, and considering the current low prices, this should increase the market activity and thus push the prices a little.” Kapadia continued, “We do not expect it to boost prices significantly as the overall market is subdued due to the worries about rising interest rates.”

There is no shortage of economic analysis during the buildup to this year’s celebration as The Economic Times reported “bullion has climbed almost 10 percent on the Indian market this year as world prices increased on… reduced chances of a further hike in U.S. interest rates in 2017.”

However, history shows that rising interest rates do not necessarily make bonds and cash more attractive or push the demand for (and therefore the price) gold down. Interest rate hikes are usually a gold bullish event.

“Gold prices going down after rate hikes is a myth propagated by the financial establishment and portfolio managers who may be intellectually lazy or have a vested interest in scaring people away from gold,” says Stefan Gleason, president of U.S. precious metals dealer Money Metals Exchange. “In reality, central banks are almost always behind the curve, and real interest rates may be going in the opposite direction despite the rate hikes.”

Slaying the Beast Takes Multiple Blows

Diwali is a grand, extravagant multi-day festival celebrating many things by many different groups of people. One of the more popular tales remembered and celebrated during Diwali is that of the brave Lord Rama. According to legend, he returned from exile after having saved his kidnapped wife and slayed the evil demon Ravanna.

This tale of glory and triumph evokes the sound money camp’s monetary hero, gold, facing the evil government and its minions, the “professionals” who often have a cynical bias against the yellow metal.

In the grand battle, Rama fights fiercely against Ravanna and his footmen. After a long and taxing battle, Rama delivers a blow that decapitates Ravanna’s central head. Unfortunately, another head appears in its place. Finally learning that Ravanna’s secret was an immortality nectar held in his stomach, Rama fired an arrow that finally laid Ravanna to rest.

Like Rama, gold finds itself fending off attacks from all sides. The federal government has been striking blows at gold since 1933, when Roosevelt banned all private possession of gold and required it be handed over in exchange for paper money. Gold has had all sorts of taxes levied against it. Gold and silver coins were stripped of their constitutional role as the only forms of money states could recognize as legal tender in payment of debts. Today, countless Wall Street types make a living trying to pierce the armor of gold in print and on television.

Fear not! It’s true that sound money’s lionhearted soldier hasn’t launched the fatal arrow that finally slays the fiat money system run by the world’s central bankers. But the battle is tipping further in the direction of our fearless hero every day.

In America, States are taking the necessary steps to unshackle gold from its bureaucratic chains. 36 states across the union have an exemption against sales taxes being levied in precious metals purchases. Arizona has moved towards widespread acceptance of gold and silver by recognizing its legal tender status while removing capital gains taxes on precious metals holdings, with Wyoming, Idaho, and Tennessee not far behind. Texas is setting an example on how to shore up pension funds using gold, not to mention creating its own bullion depository.

Step by step, hard money forces are making advances. They still have a long way to go, of course. But they can draw inspiration from previous epic struggles against powerful foes.

During Diwali, millions of people around the world will celebrate the victory of their courageous and valiant hero, Lord Rama. Meanwhile, we can all celebrate gold’s continued ability to not only survive the onslaught coming from gold-cynics everywhere, but also to steadily re-establish itself as constitutional money.

*J.P Cortez is the Assistant Director of Sound Money Defense League,

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Improving Asian demand sees gold price trending higher

Gold TodayNew York closed at $1,273.60 yesterday after the previous close of $1,264.30 London opened at $1,275.55.

    • The $: € was weaker at $1.0911: €1 from $1.0877: €1 yesterday.
    • The Dollar index was weaker at 98.59 from 98.75 yesterday.
    • The Yen was stronger at 104.13: $1 from yesterday’s 104.42 against the dollar.
    • The Yuan was stronger at 6.7720: $1 from 6.7792: $1 yesterday.

 

  • The Pound Sterling was weaker at $1.2187: £1 from yesterday’s $1.2226 £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
     2016  10  26

     2016  10  25

SHAU

SHAU

278.76

276.39

278.55

276.93

Dollar equivalent

1 oz @ $1: 6.7720

$1: 6.7792

$1,280.33

$1,268.10

$1,279.37

$1,270.58

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle Eat eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

Allowing for the difference in quality of gold priced, gold prices in Shanghai and London are in line. New York closed strongly higher with Shanghai lifting it slightly higher still. While there was good buying into the SPDR gold ETF, Asian demand together with that buying, is lifting the gold price higher in all currencies except the euro and Yuan.

LBMA price setting:  The LBMA gold price setting was at $1,273.90 against yesterday’s $1,269.30. The gold price in the euro was set lower at €1,166.25 against yesterday’s €1,166.85.

Ahead of the opening of New York the gold price was trading at $1,271.55 and in the euro at €1,164.26.  At the same time, the silver price was trading at $17.70.

Silver Today –The silver price rose to $17.75 at New York’s close yesterday from $17.59, the day before yesterday.  

Price Drivers

Asian demand remains buoyant. In India gold prics remain well below previous peaks, almost Rs. 10,000 below them so have considerable attraction to Indian investors still as Diwali arrives on Sunday. Thereafter the massive marriage season is underway.

In the developed world the festivities are at the year end, so manufacturers are busy making jewelry for that time. We, in the west, favor, not gold per se, but jewelry made up, in part, by 9 or 18 carat gold and precious or semi precious stones, whereas Asian demand favors pure 24-carat gold.

In the west such jewelry is not primarily held as an investment whereas jewelry in Asia is held for investment purposes, hence its purity. This makes it difficult to separate investment from jewelry.

In India, gold, once bought tends to stay in the family and passed from generation to generation.

In India, families are not deterred by government requirements or taxes on gold because if the government demands accountability investors buy smuggled gold with cash and refuse to comply with what they see as a corrupt government.

In China, memories of hyper-inflation and the revolution are present, alongside recent memories of poverty. The stock exchange is more like a casino in their eyes and property has become too speculative and overpriced, so gold remains the safe investment, more so as the Yuan declines.

With U.S. elections two weeks away there is a build-up of worry as to what lies ahead for the U.S. and the rest of the global economy. While both candidates are positive for gold prices, much more than that is worrying financial markets, as we look ahead to more uncertainty, greater financial risks and turbulence in 2017.

The environment is positive for gold, so these prices rises we are seeing now are looking solid. Gold ETFs – There were purchases of 3.262 tonnes of gold into the SPDR gold ETF but no change in the Gold Trust yesterday, leaving their respective holdings at 956.826 tonnes and 228.16 tonnes.  

Since January 4th this year, the holdings of these two gold ETFs have risen by 384.007 tonnes.

Silver – Longer term, silver prices should continue rising but at a slower pace than gold, for now.

Julian D.W. Phillips

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