India Stampedes Into Bullion

by Patrick A. Heller

India’s prime minister announced on November 8 that the government would immediately begin withdrawing 500- and 1,000-rupee banknotes from circulation. Their face values are roughly $7.50 and $15.00 in US funds, respectively.

India Stampedes Into Bullion

This sudden move has almost totally backfired, because it has deprived many citizens of the ability to pay for things; inflicted financial losses on those holding such notes outside the nation’s borders; disrupted domestic commerce; created even more distrust of the Indian government; and created even more demand for physical precious metals at a time when the government wanted to reduce such demand.

The surge in demand for physical silver in India is just one of three factors that could spark much higher prices by the end of January. There is a strong prospect of another surge in demand for physical silver once a Sharia-law-compliant standard of how Muslims can own physical gold and silver as an investment comes out. This is expected before year end.

Another potential boost in demand for physical precious metals could happen after Italy’s constitutional referendum vote (December 4), the most extensive constitutional change in the past century. Although the referendum addresses the reassignment of governmental powers, one fear is that this will lead to Italy discontinuing using the euro. Expect the value of all paper currencies to take a hit, and for precious metals to shine.

Even though gold and silver prices performed poorly in November, they are still up significantly over the course of 2016. The Dow Jones, at the close on November 28, was near its all-time high. Still, that was only 9.6% higher year to date. In contrast, gold was up 12.3% and silver rose 20.2% over the same time period.


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