India’s cooling on gold doesn’t represent an economic slowdown

The decrease in India’s demand for gold has some concerned that we are on the cusp of a double-dip recession. It is difficult to know for sure what lies ahead in the future of the global economy, but I assure you that a decrease in the demand for gold has less to do with that future of our global economy, and much more to do with the recent surge in gold prices.

Gold has always played a key role in India’s national economy. It took an airlift of 47 tons of gold from The Reserve Bank of India to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million and save India’s economy in 1991.

Culturally, the gift is a centerpiece of holidays such as Diwali and most weddings. Which Indian family hasn’t seen friends and loved ones gift small amounts of gold to one

Prelude to a wedding? Or Diwali?

another?

The precious metal, known as much for its utility as its beautiful luster, is often seen as a barometer of economic health. This has been especially true in India; where for the past few years, the economy has weathered much of the global recession and many saw gold investments pay off dramatically. This is why, when it was announced that India’s gold demand would likely fall by nearly a fifth, for the first time in three years, to 770 tons, the world took notice.

One nation that particularly took notice was China, which would likely claim the position as top gold consumer if India’s demand falls.

Further analysis of this trend will reveal this has less to do with India’s investment potential, or the state of the global economy, and everything to do with economic opportunities in other commodities, stock markets and the weakening of the Rupee.

Also, let’s not forget, that gold has shot up to a three-week high, within the past few days. It’s no wonder that investors are cooling towards the once hot commodity.

Rest assured, gold will continue to be a strong investment. But, as things get back on track, I believe you will see that what has really happened in the Indian economy is that investors realized that not all that glitters is gold; and likewise not all that is gold will be the best investment.

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