For much of 2009, gold traded in the range of low-mid $900 per ounce. There was a dip over the summer, with a strong upswing starting in September. Gold is now trading well over $1,000 per ounce, in fact just under $1,100.

Turns out that the government of India was buying gold in mid-October. Over a two-week span, the central bank of India bought 200 tonnes (metric tons) of gold from the International Monetary Fund (IMF) at an average price of $1,045. The IMF — over which the U.S. holds veto power for most actions — got approval to sell the gold from — where else? — the U.S. Congress, last spring.

Previously, the government of India held 350 tonnes of gold reserves. This 200-tonne purchase is a 57% increase in India’s reserves. There’s joy in India, I’ll bet. (It makes me wonder what the Pakistanis think, now that their large neighbor has both nuclear weapons AND a growing gold hoard.)

To read the rest of the story and learn more about China’s golden ambitions, click here.

Mike is worried by rising inflation rates in the so-called ‘BRIC’ emerging markets: Brazil, Russia, India and China.

India is particularly hard hit. This week the central bank there signaled it would keep raising borrowing costs to mixed reviews.

Indian inflation was driven by the first increase in retail prices of gasoline and diesel this year. The International Herald Tribune reports that,”India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners.”

It’s also worth keeping in mind that BRIC nations have still relatively small economies compared to the US, Europe and Japan.

“If you look at them in real (and not in overly flattering purchasing parity power) terms,” says The Global Guru editor Nicholas Vardy,” the BRIC countries are best compared with large U.S. states in terms of economic heft. China and its population of 1.3 billion generate as much economic wealth as do the 60 million inhabitants of California and Texas. India’s economy is the size of Florida. Brazil’s is the size of New York. And Russia is smaller than Ohio and Illinois combined.”

BRICs Crumble Under Threat of Inflation

By Mike Burnick

The most popular group of fast-growing emerging market countries which includes: Brazil, Russia, India, and China are facing their biggest economic challenge this decade. Like everywhere else on the planet, inflation is picking up in the BRIC economies but it’s much worse over there and central bankers are responding by raising rates and tightening monetary policy.

While these rate hikes may be necessary to fight inflation, tight money policies are usually a very unfriendly environment for stock investors.

India is the latest BRIC under fire. Wholesale price inflation is running at 11%. That’s the highest level in 13 years and climbing. So the Reserve Bank of India responded last week by raising its benchmark lending rate to 8%. Global investors are signaling a vote of “no confidence” in the central bank move, because they sent Indian stocks plunging.

India’s currency, the rupee, is also under attack, having lost 8% of its value against the dollar this year, the worst performance for the rupee since 1993.

India is in the riskiest position among the BRICs when commodities are soaring like this. That’s because India is a net importer of most resources, including 75% of its oil.

It’s possible India’s troubles are perhaps just an early-warning sign of other troubles to come for the BRICs. Inflation in China is running close to 8% in spite of several interest rate increases last year. Inflation just topped 15% in Russia. Brazil, which suffered a painful hyper-inflationary past, recently raised interest rates after inflation crept up to 5.4%.

Seeing this threat on the horizon, stock investors have been busy pulling money out of some BRIC markets. China’s CSI 300 Index is down over 50% from its 2007 high, while India’s Sensex Index has plunged by one-third in value. Share prices in the first two markets of the BRIC alphabet, Brazil and Russia, have so far held up relatively well. This is due in no small part to their favorable trade terms and the fact that both are resource-rich exporters.

All of the BRICs are threatened by the risk of inflation. As an Indian government official put it, “Until inflation slows, this crisis is only going to widen.”

MIKE BURNICK, Senior Editor

P.S. Speaking of inflation, the big Fed rate decision comes this afternoon. We’ll find out whether Bernanke will really “get tough on inflation” as he has claimed in the last few weeks. Keep an eye on the news because there will be some very real profit opportunities once the decision hits the headlines.

Source: BRICs Crumble Under Threat of Inflation

Like the synthetic materials that artificially shape a human body to perfection.
It is fake because there is nothing real about it.

Investing in India – the unreal thing.
Every morning the anchors on television channels chimed in unison that they were looking for “global cues”. They scanned the horizon for a sign of that ship – even for a shadow – to tell you where the global cues were going to lead the Indian stock markets on any given day.

For all our chest-beating, the sail winds of India Shining, India Resurgent, and Incredible India were being blown by the butterflies flapping their artificial wings in some remote financial capital.

There is nothing wrong about foreign money coming into India. But there is everything wrong about not knowing why that foreign money is coming in; how long it intends to stay; and who owns it.

But neither the BJP-led NDA coalition nor the Congress-led UPA coalition paid much heed to the warnings of the Reserve Bank of India. Bankers – the traditional ones that we thankfully have at the RBI – are, by nature, cautious. They ask questions: “Good morning. I believe you wish to invest in the Indian stock markets”, they would ask a typical foreign investor, “that is so very nice of you. But, I beg to know, who are you and what do you want from this investment in India?”

Hey, this is the 21st century and the world is fat with money sloshing around. Who has time for questions and filling in all those badly drafted FII registration forms? Just take it as it comes, baby. Turn on the P-Note tap. Flood me with your synthetics.

And so the bull market began. The synthetics came bouncing around and jiggling all over. The surging Index had the media and the government officials into a salivating fit. Every trading day for the past 5 years (approximately 1,320 trading days) the foreign investors bought a net of Rs 3 crore of stocks in every hour of trading.
About Rs 5 lakhs every minute.
Looking good, baby! Jiggle away!
And the share prices went into a dance and then into a wild dance in September 2007 when the pace quickened by 8x to Rs 24 crore every hour.
That is Rs 40 lakhs every minute.

But every dance comes to an end.
Every sailor heads back home.
The butterflies stop flapping their wings.
The mighty sail of the Indian stock market flutters in search of direction and then folds.
Marooned in a sea of red, everyone wonders what happened. The markets are down. There is no global cue on the horizon. You see the plastic on the floor – that is a residual of the synthetics. The central bankers shake their head in a “we told you so” motion. And they, like true bankers, help to clean up the mess.

The Indian slow dance.
Meanwhile, the poor Indian investor kept on giving their two-bits to the mutual funds and the Indian stock markets. No minister came to meet them in Jalandar, Patiala, or Secundrabad. No one sent them any invitations to attend any conferences in London and New York and Hong Kong about what a wonderful investment destination India is. The local investors took out 2% from their annual savings of USD 300 billion and plonked their Rs 3 lakh per minute investment into the Indian stock market. Most of this found its way into the Indian stock markets via a mutual fund or a unit linked insurance policy (a bad choice of vehicles, most likely, but that is a topic for another Honest Truth!).

This kathak-like pace is no match for the synthetic foreign investors who are now running for the exit.
Running as if they are in a disco that has caught fire. As the foreign investors dump their shares, the buying power to match that selling is just not there in India.
In simple economics, when supply exceeds demand – when sellers of shares are more than the buyers of shares – the share prices have only one way to go: down. Sharply down. Like the panic sales you have seen recently.

Shift the beat to a disco bhangra.
But this gentle pace of the Indian kathak, can turn into a sustained disco bhangra.
A bhangra that will match the selling by the foreign investors.

Another law of equilibrium in economics: when demand matches supply, prices will be stable.
So far this year foreign investors have sold USD 5 billion worth of shares. That is Rs 53 lakhs every minute of trading.
The Indians are buying at the rate of Rs 3 lakhs per minute.
“Houston, we have a problem.”
Supply (Rs 53 lakhs of selling by the foreign investors) is more than demand (Rs 3 lakhs of buying by the Indians). Ouch!
When supply is more than demand, prices have only one way to go: freefall!

There is a way to make the Indian supply zoom really quickly. This is to allow the pension funds to start buying into the Indian stock market. However, given the fact that this proposal has been sitting with the government for a few years, the reality of coalition politics will ensure that nothing will happen.

But there is another way: extend the benefits of Section 80 C.
Currently, any individual can use up to Rs. 1 lakh to buy shares (locked in for 3 years in an ELSS), repay a home loan, and contribute to a PPF. This entire Rs 1 lakh is freed from any income tax obligations.