Adit Jain - Perspectives

Changing Tides - INFLATION
Global bond yields have, over the past few months, started to rise as markets expect inflation to perk up and central banks shift gears towards a more hawkish monetary stance. The United States Federal Reserve, a few months ago, declared its intent to start the process of unwinding its previous bond purchases and therefore shrink liquidity. US bond yields consequently spiked to 2.74%. German treasury bills too have risen from 0.41% to 0.77% over the past twelve months, prodded by comments from Mario Draghi, the head of the European Central Bank, that future bond purchases by the ECB will begin to moderate. All of this is in the backdrop of robust economic growth in America at 2.3% and in the Eurozone at 2.5% last year. Since the global financial crisis, central banks kept credit markets functioning, bailed out banks and provided assurances to wobbly bond markets. Perhaps, the protracted era of bonhomie is coming to an end as the interest rate cycle begins to …

All that glitters: GOLD

In our article “Different Strokes” dated February 12, 2018 we lauded the benefits of the redeployment of savings from gold to financial instruments. The surge in yields for households could conceivably be anywhere between 1.5% and 6% of annual income. Moreover, there are tangible savings when money is borrowed from banks and micro finance companies, instead of traditional informal sources that a large chunk of the rural population currently depends upon. The reduction in interest cost could lie between 2% and 4% of income per annum. Even real estate investments, especially those in utilised commercial properties create economic churn and are therefore, productive. However, what is completely unproductive from even the most generous benchmarks is gold.
Some estimates suggest that gold holdings by Indian households and temples are about 22,000 tonnes. This adds up to a colossal USD 1 trillion in dormant assets, at current prices. That is a huge sum in the context o…