Indians Are Selling Gold - Is Their Thinking Right? 25 comments

Peter Cooper

The current strength of the gold price is leading to a massive gold sell off in India as holders of the precious metal cash out at high prices. Are Indians right to be selling their gold or should they be holding on?

This January the Bombay Bullion Association reported that gold imports plunged from 14 tonnes a year ago to just 1.8 tonnes because dealers can buy all they need from the scrap jewelry market. Local traders said they have people queuing up down the road to sell gold.

Indians have a strange habit of behaving rationally and buying cheap and selling high when it comes to gold. They were big buyers as prices tumbled last year. But have the smaller sellers got it right this time?

Double-top?

It could be that gold is about to form a double-top and will tumble after repeating its March 2008 high. A correction from a heavily overbought market is certainly possible with the emerging consensus among expert analysts on the all too numerous TV slots about gold a worrying sign.

However, a short correction might be followed by an even larger rebound and those selling now could feel clever for only a short period, and then be counting their losses.

On the other hand, the news about the global economic recession is not getting any better, and fears about bank nationalization are prompting a shift of wealth into precious metals.

These new holders of precious metals comprise billionaires and global central banks, and should likely far outweigh panic selling by the masses in India.

Inflation protection

Indeed, the poor are going to be ripped off by the rich once again as gold soars in price to an inflation adjusted high of $2,400 before moving upwards into bubble territory of $4-6,000 an ounce.

It is quite clear that we have not seen the end of the stock market sell-off in this bear market, and as stocks move lower over the next six months, it is surely likely that at least some of that money will end up in precious metals. Not bonds, which will shortly be decimated by a tsunami of inflation courtesy of the multiple global bailout packages.

History might repeat itself, but global economic circumstances have changed since last March’s gold price fall, and any price weakness should be seen as a buying opportunity. The Indian masses have got it wrong!