India’s gold potential undermined


LAST week, gold prices touched a 16-year record high, and analysts believe this is just the beginning. BW caught up with Sandeep Lakhwara, MD, Deccan Gold mines, the only listed private gold exploration and mining company in India, to get his views on gold prices, the demand-supply of gold and the future of gold mining in India.

Your view on gold prices…

Gold prices have been on the rise for the past 18 months or so, and they are only going to move upwards from here. There are some fundamental reasons why this is happening. The major driver is the weakening US dollar. If it continues to deteriorate, then the price of gold will continue to strengthen. And the value of the dollar depends on basic fundamentals – budget deficit, continuous spending on war, terrorism, high borrowing, all of which point to a further weakening of the currency.

Economists believe the dollar could see some more weakness, going ahead. Of course, there are going to be adjustments in the price of gold generally heading up. So far, the US dollar has been the reserve currency of the world, but as its value decreases why would anyone want to hold their assets in dollars?
The value that you get at the time of realisation could be much lower. Wouldn’t you rather hold it in gold?

Geo-political tensions worldwide is another contributor to this northward movement. There are a lot of countries which are looking to add some gold into their system, and thereby gain substance within their currencies. The Malaysian government is looking to introduce a currency made of gold – the gold dinar.
The new President of Argentina has proposed a gold-backed peso. Another important thing is that the price of gold is now being subdued deliberately by some bullion banks. According to the Gold Anti Trust Action Committee (GATA), about 15,000 tonnes of gold has been loaned by the Central banks to the bullion banks for which they paid about 1 per cent per annum. The bullion banks then sold the “loaned” gold on the open market and invested the proceeds at 6-7 per cent per annum. When gold prices started heating up, the bullion banks (that are in debt to the Central banks) have to buy it back to repay the gold borrowed from the banks. Each time gold rallies, the Central banks are reportedly selling more government gold to cap its price.

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