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By David Franklin – Market Strategist, Sprott Asset Management
With the Indian rupee continuing to plumb new lows against the US dollar, it is clear that the Reserve Bank of India (RBI) is losing its war on gold. Our Chart of the Week shows the gold price in rupee hitting a new high yesterday.
The gold price has exploded in India since the low hit on June 28th, increasing a whopping 30% in the span of only 2 months! The culprit is likely the rupee collapse, which has been equally as stunning, falling by 15% against the dollar over the same time period. Further contributing to the increase in the gold price has been the escalating tension in the Middle East that has driven demand for safe haven assets.
As we have discussed in previous articles, gold is synonymous with savings and security for many of India’s 1.24 billion people and recent events clearly show why. With capital leaving the country, investors fleeing the stock market and dumping Indian bonds, the only asset that has protected capital has been gold. In fact, holders of gold have prospered in an environment where there are few safe assets. The RBI has attempted to make gold ownership difficult and expensive for Indian buyers by restricting imports and increasing taxes, yet the chart below is evidence they have failed in their campaign.
The gold price in India has moved into uncharted territory…
Source: Bloomberg, Sprott Asset Management
