Sunday, May 1, 2011

The barbarous relic may have some use - yet

Indians own an estimated 18,000 tons of gold, the World Gold Council estimated in October 2010. On the last trading day in April 2011, gold traded at a little over 50,000 dollars a kg, or 50 mn USD per ton. Rounding the numbers off for simplicity, that's roughly 1 trillion dollars of gold.

A lot - that's roughly 3 times our FX reserves, which actually only just balance our FX borrowings.

I have had this thought for a while that, if the global financial imbalances lead to further currency volatility, one of the fall-outs will be much higher gold prices. A nation as dependent on commodity - particularly petroleum - imports as ours will be badly hit if raw material prices continue to surge. If the crisis gets really deep, I have this gut feel that our private holdings of gold will have to be mobilised to bail us out.

Our government is grossly under-prepared.

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