The wedding of the daughter of one of Dubai’s leading jewellers sometime ago provided an insight into what young girls think of gold these days. In sharp contrast to the advertisements that her father’s business promotes — showing models barely managing to balance the weight of the heavy jewellery on their lean frames — the bride turned up wearing just a diamond necklace, obviously an exquisite one carrying a heavy price tag. There was no gold to be seen.

But luckily for the father, the vast majority of gold buyers do not share her idea; otherwise, he would have been long gone with his shops and the glitzy ad campaigns. The millions who continue to buy gold know that when they are in a desperate situation, they can pledge their gold and raise money, which they can’t do with diamonds.

But is gold’s store value under threat? Opinion seems to be sharply divided. Even conspiracy theories are being put forth.

The insatiable appetite for gold in the traditional societies of India and China and the opportunity to buy the metal at lower prices have so far been propping up prices, but the latest round of price fall, breaching the psychological $1,400 (Dh5,142) level, is being largely blamed on India. Some commentators are even accusing India, meaning the Indian government, of waging a war on gold.

The Indian government considers that gold import is the chief villain in the country’s current account deficit imbroglio, which prompted the government to place draconian regulations on bullion traders, raise duties and taxes and put pressure on gold traders by launching investigations against them.

Negative sentiment

But opinion is building up in the international gold trade that India is making gold a scapegoat for all the failures on the economic front. This has in effect generated a lot of negative sentiment in the global bullion market.

The debate is even acquiring a proletarian angle. Indians are estimated to privately hold 18,000 tonnes of gold, which is some 350 times the size of the official gold holdings of the Reserve Bank of India. When the import duty on gold bars was raised from 4 per cent to 6 per cent in January 2013, gold was trading at $1,692 an ounce. Gold has since fallen to $1,200, a decline of 29 per cent.

Leading bullion trader Norman Ross, who has an impressive track record in forecasting gold prices over the past decade, is claiming that the Indian policy of restricting imports has already made Indians poorer by $100 billion. He describes it as a case of robbing Peter to pay Paul. The argument is that the quarterly current account deficit is about $20 billion, making the annual figure $80 billion, but the public has already been ‘robbed’ of $100 billion.

Norman goes to the extent of finding a conspiracy in the whole issue. He feels that India’s rural population is left with the uncomfortable feeling that the government wants them out of gold and into something else, maybe the stock market.

The Indian move is even likened to something that rivals Gordon Brown’s selling off of over half of the UK gold reserves between 1999 and 2002. Brown sold 60 per cent of the UK’s gold reserves of 395 tonnes for an average of $275.6 an ounce during this period, only to see prices subsequently rise to above $1,600.

Poor economic judgment

The UK government’s intention to sell gold was to reinvest the proceeds in foreign currency deposits, including the euro, as part of a move to diversify the country’s assets away from gold in view of the metal’s high volatility at that time. The decision, however, eventually cost the British taxpayer billions of pounds and is cited as one of the worst economic judgments ever made by a chancellor.

It is now to be seen if Indian Finance Minister P. Chidambaram turns out to be a worthy successor to chancellor Brown and his ‘Brown’s Bottom’, a description of the period with the miscalculated UK gold sale that has stuck.