The year 1890 was one of both progress and loss throughout the world. Benjamin Harrison was in his second year as President of the United States. The Sioux Indians lost eleven million acres to the United States government. The first American edition of Sherlock Homes was published. And the United Mine Workers of America was formed.
That same year, across the ocean in India, British engineering firm John Taylor and Sons was hired to make one last effort to scout for gold in an ancient mine after other prospectors failed. Kolar’s mine is seven centuries old, and is said to have been the source of gold for ancient civilizations. After the British firm successfully struck gold, bringing the mine back to life it was popularly known as Kolar Gold Fields (KGF), and became a city unto itself – one of the first Asian cities to run on electric power.
But in 1989 KGF ran into a series of financial difficulties. The owners finally shut it down in 2001, one hundred and fifty years after it re-opened, and after having extracted over twenty five-million ounces of gold from its depths.
Now an Australian-Indian consortium is looking to reopen the abandoned mining operation. As the world’s second largest importer of gold, according to Mining.com, India has a voracious appetite for the yellow metal. According to the World Gold Council, its national demand reached over 654 metric tons in the second half of 2015 – the country’s third highest year on record for gold demand.
If successfully re-opened, the Kolar mine could represent a big economic step forward, enabling the country to curb its annual thirty-five billion dollar cost for importing gold. Last year, India initiated a gold monetization scheme as an incentive for consumers to exchange gold kept at home for interest at a bank. But that scheme hasn’t yet even begun to satisfy India’s burgeoning demand.
What ought to captivate us as investors in our dollar-focused economy is how highly gold is valued by people in another country, and how important a role the shiny metal plays in India’s overall economy. This isn’t a minor consideration; India’s economy is the world’s seventh-largest, with a GDP of $2.18 trillion (U.S.). But, as Wikipedia points out, “If you consider PPP (how much that money can buy in India compared to other countries), [their] economy is third largest [worldwide] (worth $8.02 trillion U.S.).”
What’s also notable is the effect our own Fed’s decision has across the ocean; for, as the mining.com article points out, “The Fed’s gradual rate hikes have also weighed on the US currency, making dollar-denominated gold more attractive to other holders [of other currencies].”
Maybe some borrowed wisdom from afar might serve to persuade us our dollar is shaky, which also renders our paper assets vulnerable. Physical gold is a tangible asset that will help shield these assets in the event the bottom drops out. Yes, one of the main reasons Indians value gold is it’s an integral part of their wedding ceremony and legacy to future generations. But gold holds this role in India precisely because it symbolizes lasting, transmittable value for generation after generation. While we don’t celebrate these traditions in exactly the same way (although gold you can keep does seem more special than a hundred dollar bill you’d better spend while it’s still worth anything), we’d be wise to learn from the solid economic sense behind them.