From Ankit Shah – Vivek Kaul’s Inner Circle (India) –
One of our Inner Circle members wrote to me recently saying that he was considering buying SGBs through the stock market. But he was a bit curious to know more about a line we had written in our SGB note in the 6 September 2016 issue of Inner Circle: “A f te r all, gold offers protection against the government’s mismanagement of the economy. Why would you want to buy that protection against the government from the government?”. So, before I take you on a journey through the world’s central banks, I have penned a follow-up note on sovereign gold bonds (SGB).
After a muted two years, demand for gold is picking up again. The domestic price of gold is up about 18% in the last one year. The curbs on gold imports, imposed in 2013, have been removed. And good monsoons this year have ushered rural India back into the market.
Our love for gold is as old as Indian civilisation itself. We view it as a form of a long-term security. By ‘long-term’, I mean several generations. This behaviour is not going to change any time soon.
It’s interesting that we do not view gold as the Western world does. In the US, for example, gold is an investment. An investment that wears many hats. Gold offers protection against central bank money printing. It’s a store of value. It’s helps diversify portfolios. It’s a hedge against inflation. It’s a form of insurance against a massive economic or social upheaval.