How Gold Reacts To The War On Cash

Gold in India.jpg

Please read the following article before taking a look at my comments on the situation: Gold Price Skyrockets In India After Currency Ban

Here are the most important considerations from the article:

As I write this in the morning of 9th November 2016, there are huge lines forming outside gold shops in India — and gold traded heavily until late into the night yesterday. Depending on who you ask, the retail price of gold has gone up between 15% and 20% within the last 10 hours.

At some places, it was sold for as much as US$ 2,294 per ounce. That is, if you can actually find physical gold — gold inventories at stores are rapidly depleting. All of this happened well before the international price started to move up because of the election results coming out of the US.

Last night (8th November 2016), India’s government banned the use of Rs 500 (~$7.50) and Rs 1,000 ($15) banknotes. This pretty much made most currency-in-use illegal. Banks and ATMs are closed today. The government believes that doing this will help eradicate corruption and push counterfeit money out of circulation. According to the Indian government, the counterfeit money tends to come from Pakistan and helps finance terrorism.

In countries that don’t have world reserve currency status and endless deep pockets to prop up – or shove down – various prices in order to avoid derivatives books blowing up, gold is wildly popular and even priced at all time highs.

One of the general components behind the thesis for owning gold concerns the war on cash. This is by no means the strongest aspect of the case to have gold in your portfolio, but it’s worth paying attention to at this juncture because we’re seeing a case study unfold in real time.

Whether the same types of measures being implemented in India will eventually make their way throughout the rest of the world remains to be seen, yet there has been a gradual push getting stronger and stronger over the past several years to move in this direction. The crackpot Keynesians and authoritarian statists are interested, but this trend also has the attention of precious metals investors as well as cryptocurrency advocates.

While it is true that the population of India is more favorably disposed to gold relative to Western populations, I’m expecting that gap to close over the coming months and years in terms of attitudes. The mind-blowing relief rally following the election of Donald Trump can go any way that it likes, but we still have to deal with the problems of debt, currency creation, and the central banking system.

There is a lot of work to be done, and perhaps a unique window of daylight to make some genuine progress. Nonetheless, what’s taking place in India should provide another impetus for those who are still without precious metals to take advantage of the current buying opportunity in US dollar terms in order to preserve purchasing power and safeguard savings.

What would you do if your cash was declared null and void overnight?

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