From last May: Gold jewellery tax to push up prices – The Times of India—sales tax of only 1% even on trivial amounts of gold. But coupled with the 6% gold import tax, this killed the Indian jewelry market. So, as I explained in the past, the Indus Bull was slain and the gold market in the US took a bit hit. We see from the graph above, gold has been rapidly falling in price just like it did in the 1980′s. Far from being attached to the value of the dollar, gold is a commodity traded in world markets and thus, follows the rules of supply and demand. And demand is down in India which is a huge, huge gold market.
Inflation is over 11% in India so couple the falling gold prices with inflation and gold is a negative value purchase, not a positive value. If gold were going up, it would be a plus, not a negative. And as I point out again and again, governments control markets in various ways and this definitely includes tariffs and taxes. You tax where the money is, not tax just poor people who can’t escape.
The above graph shows how gold did outstrip inflation briefly in the 1970′s due to Nixon cutting the gold standard and then suddenly the doors opened for buying gold openly and not just as jewelry. Gold prices were under bank controls until Nixon did this. I remember very clearly when he did this, it was on a weekend and I was quite shocked when he blurted out at a press conference and refuse to take questions, that the gold standard was dead and gone via fiat between him and the head of the Fed Reserve, Mr. Burns.
The Indian gold market cooled off considerably but not enough to fix the trade deficit so India Increases Gold Tax Third Time This Year to Cut Deficit: and one thing people with high levels of money love doing is not paying any taxes as we see here in the US when much of Congress and the very rich conspire to evade taxes and the GOP even ran an offshore tax dodger as President!
India can’t run on taxes collected from the lower 75% of the population. It must tax people with excess wealth. This is true of all functioning societies. The only thing keeping the gold market alive right now is China. China’s Consumers Show Growing Influence in Gold Market: a record $385.5 metric tons were sold there in the second quarter of this year.
Since gold has fallen almost by a quarter in value this year, the Chinese consider this a bargain and they alone are keeping the market alive. Like India, much of China’s gold is jewelry. This is mainly due to the low cost of labor.
However, the main damage to its bottom line was caused by a 25 per cent fall in the price of sterling gold in its second-quarter. Mr Nichols said: “When gold prices fall the propensity of customers wanting to sell lessens.” He believes there is also now less gold in circulation as many people exchanged their jewellery during the recession before the price of the metal started to tank.
True, the relative value of various currencies compared to gold leads to this market moving restlessly about the planet depending on the FOREX values. This has little to do with ‘inflation’ and tons to do with ‘free trade/floating fiat currency regimes’. Note that trade giant China is increasingly the #1 gold market, too. This is inevitable.
Much of the gold buying in the US is the older generation rushing to find some way of protecting savings due mainly to the Fed Reserve ZIRP rates which gives nothing for capital held by bankers who can lend with no value added to their customers who park their pitiful funds in banks. It is a dead hand system.
Once the Federal Reserve starts to raise interest rates, for whatever reason, we will be hit with a crisis. Banks will struggle to maintain capital ratios…
…Once the Federal Reserve starts to raise interest rates, for whatever reason, we will be hit with a crisis. Banks will struggle to maintain capital ratios, as their bond/loan portfolios take a hit, forcing them to increase the pace of lending to cover losses…Capital losses will stimulate more lending. The more banks lend, the more it fuels inflation, which in turn puts pressure on the Fed to further raise rates…
ZIRP is a trap. I wrote about this years ago and said, Japan was the leading edge of zero interest rates which eliminates the value of capital. It is an anti-capitalist system worse than communism.
This trap is most enticing for bankers because the capital they hold is NEGATIVE for them that is, they have to pay someone to use this capital to lend. With ZIRP, there is no need of this and they love this system whereby they get to hold capital while giving nothing in return!
HAHAHA. Note how they campaign to keep this scam going. They invest in stocks, properties, palaces, fancy artwork they collect from each other, buying sports clubs and players, buying influence and businesses. They do this with basically free loans from savers! And love it to pieces note how ZIRP has made them all very rich and they can buy gold, too, so long as there is no tax on it.
Thus the Indians running away from gold when there is a mere 8% tax on it.
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