Arora report creates ripples in bullion market

Nigam Arora wrote that the real reason for crashing gold prices was not Trump victory but Modi demonetising 86% of the country's currency base at one stroke

The comments of US-based strategic investor Nigam Arora on the gold price fall being driven by India has been impacting the global bullion market since Wednesday.

He had, that day, written in his closely tracked The Arora Report that the real reason for crashing gold prices was not the Donald Trump victory there but Narendra Modi, the Indian prime minister, demonetising 86 per cent of the country's currency base at one stroke.

Arora, founder of two fast-growing companies, claims authorship of a method of making money by predicting change before the crowd follows. On Wednesday, following reports of an increase in the US Federal Reserve's policy rate being certain in its December review, gold prices fell in a few hours from $1,217 an ounce to $1,176. Gold had also fallen soon after the Trump victory, on his spending plans, which strengthened the dollar.

 

However, according to Arora, "to understand heavy selling from India on Modi's move, one has to understand the underground economy in India that runs on black money". His report estimated the underground economy in India at a fifth to a fourth of the total.

He'd said: "Converting black money into white money has been a major source of demand for physical gold. Now that large bills used to buy gold are worthless, demand for physical gold will decline."

In India, there were rumours that the government could restrict import of gold or even ban it for a few months. For, in the nine days after demonetisation, its import rose by $2 billion, which is unusual. A day's import worth $900 million is said to have been cleared from the Customs on November 16. Further flows have slowed but the rumors have spread to the international market. Also, with a strengthening dollar, several countries where exposure to gold is higher are rumored to be considering taxing the gold trade or restricting its import.

Traders on the Multi Commodity Exchange here have cut positions in gold and silver; prices are down in the markets, with the premiums of a few days earlier having vanished; prices are again quoted in discounts to the import price.