The glitter of gold.

When the international price of gold fell precipitously there was an enormous sigh of relief across government circles. The feeling was that this will reduce the cost of gold imports because of the lower price and because those who bought gold at high prices will have suffered significant erosion of value and so it will lose its luster as an investment which is proof against inflation. Falling volume of gold imports along with a slide in its value would reduce the Current Account Deficit and reduce the danger of a cut in the credit rating. Alas these pious hopes have been cruelly dashed. Gold imports rose 138% from a year earlier to $7.5 billion in April. Between January and March this year India imported 256.5 tonnes compared to 202.1 tonnes last year. The trade deficit in April was $17.8 billion in April compared to $14 billion last year and $10.3 billion in March. Seems that instead of being depressed at the fall in the price of gold people have seen it as a buying opportunity and happily increased purchase. " We expect gold imports to rise to 1,450 tonnes from an estimated 950 tonnes in 2012 -13, thus nullifying the fall in prices," said Indranil Pan, Chief Economist at Kotak Mahindra Bank Ltd. Livemint, 13 May. As is its wont the Congress reacted with fury and has made it almost impossible for people, which it sees as its enemy, to buy gold. Tax was increased from 2% to 6%, banks were told not to sell gold coins, import of bullion has been restricted and buying of jewellery now requires more proofs of identity and income than buying arms. The Congress never learns. This has been tried before and led to extensive smuggling and the rise of Haji Mastan. In an angry article one Sundeep Khanna writes that the Indian love for the yellow metal is " an obsession that is as primitive as it is wasteful ". Livemint, 16 May. Since gold is scarce mining companies are destroying rain forests and pristine wilderness to find it. The concentration of gold being very poor one ounce of gold creates 30 tonnes of rubble. Hence, just one bracelet could create 40,000 tonnes of earth. To recover gold from ore companies use cyanide and mercury which are highly toxic to the environment. Mr Khanna thinks Indians should be subjected to intense education because " It's an excrement that needs to be ejected ". What scholars do not understand is that people buy gold because they have absolutely no faith in the government. Because a property in Delhi sells for Rs 850 million while a 7 bedroom property with 7 full and one half bathrooms set in 2 acres of land in New York is being advertised for $5.5 million which equal to Rs 300 million. Because CPI is at 10% but the government is forcing the RBI to reduce interest rates thus stealing from savers to protect borrowers. A correction has to happen. Either property prices will fall by 80% or the rupee will. People are just protecting themselves. It is called survival.