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Gold has unique characteristic of store of value which is not with paper currencies, which tend to lose value over a period of time due to inflation (loss of purchasing power) caused by over supply of printed money.
We will compare the Currency in Circulation issued and the underlying Gold held by concerned Central Banks in developed countries. Divide the Gold reserves (in tonnes) held by Central Banks with the currency in circulation (in billion $) of the respective countries will give us a ratio, a Gold to currency ratio.
In 1973, Gold held by US central bank was 8,584 tonnes & currency in circulation was $61 billion. Dividing the gold held by the currency in circulation, we get a ratio of 140.2 for that year. i.e. 140.2 tonnes of gold was held per $1 billion of currency in circulation. In the year 2007, US central bank held 8,133 tonnes of Gold & the money in circulation was whopping $759 billion. The ratio comes to 10.7 .i.e. only 10.7 tonnes of gold held per billion dollars in circulation.
If the US were to get back to the 1973 ratio of gold held per billion $ in circulation, it would have to increase its Gold Reserve to whopping 1,07,153 tonnes from current 8,133 tonnes, an increase of more than 13 times in potential demand. With the financial crisis not over yet, Central Banks like FED would continue to inject more & more money into the financial system. Thus the debasement of currency will continue, making real asset like GOLD & SILVER more & more attractive as an hedge against reducing purchasing power & loss of faith & confidence in paper currencies.
We should thank GOD that US does not have a printing press for Gold. The YELLOW metal may be the only Savior of our wealth over longer term. That sure makes a case to buy GOLD. As far as our INDIA is concern, India’s M3 supply in INM3MS=ECI as on July 16,2010 was Rs.57,821.41 billion from Rs.56,770.76 billion (June 18,2009) & Rs.4984.46 billion on July 3,2009.GOLD RESERVE AS ON SEPTEMBER 10, 2010 – 557.7 tonnes.