Friday, January 20th, 2017 MST

Modi paper money cancellation crushes gold

Tuesday last week, India’s Prime Minister Narendra Modi demonetized 86% of the money in circulation, except for special uses. Ostensibly, it was a move to check black money, i.e., counterfeit money, money that was gotten through graft or corruption and money on which taxes had not been paid. In the four trading days following the Modi move, the price of gold collapsed $60.

What the market realized was that gold buying in India makes up about 20% of the world’s demand and that much of the gold purchased in India was with black money. However, since Friday’s drop, the price of gold has stabilized.

Modi Narendra

Now, gold investors should be focusing on Donald Trump’s promise of massive spending on the rebuilding the nation’s infrastructure and the military. I’ve seen reports that he wants to spend between $500 billion and a trillion dollars on roads, bridges and sewer systems.

As for military spending, it will depend on Congress, which may pick and choose projects. However, I doubt there will be much opposition in Congress to infrastructure spending. Still, all this spending will be inflationary.

Trump never was pinned down as to how the country would pay for the spending, but it appears he’s counting on an improved economy with much needed changes in US taxing policies. John Kennedy became somewhat famous for his tax cuts that resulted in increased government revenues.

Even if Trump comes up with the right formula, it will take years for an improved economy to increase tax revenues, meaning massive deficits for years to come. Even then, there’s no guarantee that the deficit will ever by eliminated.

Inflation is already reading its ugly head, and the fear of inflation will drive more investors to gold and silver. Only a major war would send more money into gold.

Gold’s and silver’s price dips are opportunities to buy at lower levels. Consider taking advantage of them.

4 Responses to “Modi paper money cancellation crushes gold”

  1. David

    Yes, it’s a good idea to buy gold and Silver, but who is going to buy back your metals when you want to sell and at what price??

    Reply
    • Bill Haynes

      At what price? No way of knowing, just as today there’s no way on knowing what Apple stock will sell for in the future. However, historically gold and silver have provided protection against inflation, which is on the horizon.

      Who will buy it? We’ve been here 43 years. I would hope that you’d call us when you want or need to sell. Further, there are businesses all around the country that advertise “We buy gold/silver.” Generally, though, you don’t get the best prices in businesses that buy gold/silver as a sideline.

      Reply
  2. John King

    I would agree to buy in on the current dips. 20 trillion in government debt and no end in sight. Sooner not later, paper money will become not worth anything and the government printing presses will stop. Moreover, the move to digital assets are subject to hacking and being locked down by government action in emergency times. A portion of your assets in hard metals, gold or silver, assets you can feel and touch and that have been around since the Bible days, allow me to sleep at night

    Reply
  3. Eric Mecham

    So here it is, about 3 weeks on and the price of gold is still settling lower. This could end up being the best opportunity in many years to come, if only we could pick the correct bottom.

    Of course, if I could do things like that, I’d already be rich beyond avarice…

    Reply

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