Syria Gold Spikes
Why Gold Could Hit $1,500 Tomorrow
Looking to unload some gold?
Well, India just might be the place.
According to a recent Reuters investigation, India's central bank may soon launch a new pilot project that will allow banks to buy gold back from individuals — at a rate that would be better than pawnshops and jewelers.
Imagine that... the Indian government in competition with pawnshops!
The Reserve Bank of India is requesting that banks purchase everything from coins to jewelry to gold bars.
So, is India looking to mortgage or auction off some of its gold?
Well, India's Trade Minister Anand Sharma told reporters last week that the central bank should look into the possibility of monetizing gold holdings.
Maybe he was preparing for the inevitable, or maybe he was just testing the waters. After all, the last time India tried to do this, it was a disaster...
A Well-Constructed Plan
It all went down back in 1991.
On the way to the airport from the central bank, an unmarked vehicle was discovered with a huge shipment of gold. It was actually meant to be a secret, but the vehicle broke down on the way to the airport.
So perhaps Sherma is looking to see if folks would make a fuss if government officials attempted to do this again — only out in the open?
I suppose it's too early to tell.
But one thing's for certain: If India attempts to cover its current account deficit by monetizing its gold, it would have to monetize about 500 tonnes (at current value). And certainly that's enough to affect gold prices.
Don't forget, we saw a nice drop in gold prices after Cyprus officials told the world that they were considering selling their gold reserves to help battle the island nation's financial crisis. Although the sale never materialized, just mentioning the possibility sent bearish signals to the market.
It's also worth mentioning that just a few days after word from Sharma hit the streets, Indian banks announced they were placing a condition on borrowers that they cannot use any type of loan — including personal loans — to buy gold. This is certainly a tough sell in a country where “wedding season” is typically associated with gold, as it is an all-important part of a bride's dowry.
According to a recent piece in the Economic Times, the measures follow directions from the Reserve Bank of India to banks and NBFCs that are aimed at reining in demand for gold. As it stands, no advances can be granted by banks for gold purchases in any form: bullion, jewelry, coins, or units of gold ETFs and mutual funds.
Don't think this is not a well-constructed plan.
The 85 Billion Pound Elephant
Of course, if India does end up monetizing its gold, it would likely happen around the same time as a potential strike against Syria.
And there are plenty of analysts who agree that if military action is taken soon, gold could spike to $1,500 before October.
Also keep in mind that last month, gold passed its 50-day moving average and its 100-day moving average. Just last week, gold crossed the $1,433 mark. Check it out:
As Citigroup's technical research team recently noted in a memo: “Gold is now decisively through previous resistance and is pushing higher towards the $1,500 and $1,532 area.”
It should also be noted that a recent strike in the South African gold sector has affected prices, too.
However, there's still an 85 billion pound elephant in the room...
I'm talking about the tapering by the Fed.
This cannot be brushed aside, despite the fact that so many expect the new Fed chair to keep that printing press humming along. I suppose nothing should be taken for granted.
Truth is if liquidity facilitated by the Fed is affected, I don't think $1,200 gold is out of the question.
But long term, gold remains the safest place to be. Because when the proverbial poop hits the fan — and it will — it'll be gold that keeps you out of harm's way.
A new war in Syria will only serve to expedite the whole thing.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He is also the founding editor of Weekly Score, a sector-agnostic service that focuses only on quick trading opportunities. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
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