China buys gold, India buys votes! - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
China buys gold, India buys votes! A  A  A
25 APRIL 2009

So there we have.
The real difference between India and China.
Statistically proven.
An irrefutable fact.

The Indian politicians are to spend an estimated Rs 10,000 crore to buy the votes that will be counted from May 16th, 2009.
The larger numbers of votes the politicians get, the better are their chances to sit on the negotiating table and cobble up a messy coalition that can find its way to the Lok Sabha.
And there they will have another opportunity to spend some more money - or get some money - to ensure they are part of some coalition.
Of course, if they spend even more money right up front on ensuring an absolute win - there is no need for the peacock feather dance and trying to woo all those coalition partners.

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But, whichever way you look at it, the money of the people of India is being spent on buying votes.
About USD 2 billion of it.

China, meanwhile, has just announced that it has bought more gold.
454 tonnes of it.
That works out to 454,000 kilos.
Or, in case the government of China was looking for a well-managed, low cost, low-tracking error gold fund that tracks the underlying price of gold - and stores it safely in the vaults - that is the equivalent of 908,000,000 units of the Quantum Gold Fund (click here to see the latest prices of QGOLDHALF the NSE-traded exchange-traded fund that owns gold for around 1,600 investors).

That is a lot of gold.
At an approximate price of Rs. 15,000 per 10 grammes, that works out to Rs. 68,100 crore.
About USD 14 billion of money power.

Democracy has a price, and we must pay it
Now, don’t get me wrong.
I am all for democracy and free speech.
And I think spending USD 2 billion on keeping it alive and kicking is a small price to pay.
I would rather live in a country where I can speak freely than in a country where my words are controlled.

And this is also an economic investment: I believe that India will do very well in the long run because of democracy.
China may suffer because all that pent-up suppression could explode if things go wrong in their political model in the long run.

In fact, the long run may have arrived.
It may be around the corner.

The slowdown in the global economy is causing huge job losses in China.
So far, there is no apparent stress to the system.

In India, we have - as author V. S. Naipaul pointed out - a million mutinies every second.
India is organised chaos.

Politicians buy votes, you buy peace of mind
But while the politicians spend our tax money on their vote-buying for their eventual benefit, we still have money under our control that we can choose to invest.
The money that we have saved for our future.
To invest the way we want to.
In a way that protects us.

Just in case:

  1. the global financial system moves into a tailspin - although this is less likely now, with all the government money being spent to bail out AIG, Citibank, and Goldman Sachs; or
  2. the greatest shovelling of money leads to higher inflation - which is the more likely scenario now.

Either way an investment in gold is a good way to sleep well.

Table 1: Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

China is diversifying, are you?
China is tired of owning US government debt which may be worthless pieces of paper - and that too without an image of Chairman Mao.

So China is busy buying all kinds of real, hard assets.

They are buying iron ore mines; copper mines; and rumour has it they are keen to buy agricultural land - eh, but not so that they can bribe someone and have it converted to build an SEZ; the Indian developers beat them to that pony trick.

And China is buying more military equipment, too.

And now they are gobbling up gold.
So make sure you get your chance to buy some gold for yourself.

But please do not sell your vote to buy your gold.

Table 2: Who owns the gold?
Country / Holder Gold Reserves (Tonnes) Gold as a % of Total Gold with central banks
United States 8,133 27.4%
Germany 3,413 11.5%
IMF 3,217 10.8%
France 2,528 8.5%
Italy 2,452 8.3%
China 1,054 3.5%
India 358 1.2%
Exchange Traded Funds, like QGOLDHALF 1,659 5.6%
World (Total of all central banks) 29,697 100.0%
  Source: World Gold Council, Reuters, Quantum AMC
  Data as on Q3 2008

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Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited.

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4 Responses to "China buys gold, India buys votes!"

Vikas Rai

Apr 29, 2009

It is really excellent piece of writing .I am really impressed with your knowlegeway of expressing rhe same in writing. b r
From : Vikas Rai Berry Company Secr etary Also, former chairman of Ludhiana Chap ter of ICSI


Sameer Singhvi

Apr 27, 2009

Interesting analogy Sir, I also believe in democracy and freedom of speech but not in the way democracy exists in India. There is very thin line between Manmaani n Democracy,in my opinion India has MANMAANI not democracy. As you rightly said that in long run India will do well... after all its goona see demographic dividend starting 2020. Forgetting the past and learning from it, if the people in power do not utilize the demographic dividend that this country will experience, its goona miss chance that comes rarely in millennium for any economy to grow by leapsbounds. As one grows, either one creates enemy's, or arrogance or both. China has very well learned it, hence developing its military base not only to defend but moreover to grow to become most powerful country in world. For India it will be biggest enemy as we grow. And one can and should learn from enemy. It will be crucial to grow even our real assets and military equipments.


sharat sinha

Apr 26, 2009

It is not easy to fight elections these days. You need to have vaste organizations of party worker to man each booths. Party workers don't care about ideology all they care is the amount of money they get paid. So why blame politicins alone? It is the people who get carried away by the gliter of the political campaign and the caste factor. with regard sharat sinha


mahesh patki

Apr 25, 2009

sir, brAs everybody is aware US is in big financi al problem they dont have anything to sell apa rt from gold which they r havin g .
My question is instead of printing no testaking huge debt burden from WORLD ban k y US is not selling part of gold which the y holdhelping those companies to come out of reces

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