Gold loses its lustre; India car sales decline for first time in a decade; George Soros on how to save EU from euro crisis

1 Gold loses its lustre (Nathaniel Popper in The New York Times) Below the streets of Lower Manhattan, in the vault of the Federal Reserve Bank of New York, the world’s largest trove of gold — half a million bars — has lost about $75 billion of its value. In Fort Knox, Ky., at the United States Bullion Depository, the damage totals $50 billion. Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17% since late 2011.

It is a remarkable turnabout for an investment that many have long regarded as one of the safest of all. The decline has been so swift that some Wall Street analysts are declaring the end of a golden age of gold. The stakes are high: the last time the metal went through a patch like this, in the 1980s, its price took 30 years to recover.

What went wrong? The answer, in part, lies in what went right. Analysts say gold is losing its allure after an astonishing 650% rally from August 1999 to August 2011. Fast-money hedge fund managers and ordinary savers alike flocked to gold, that haven of havens, when the world economy teetered on the brink in 2009. 

Now, the worst of the Great Recession has passed. Things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.

Granted, gold has gone through booms and busts before, including at least two from its peak in 1980, when it traded at $835, to its high in 2011. And anyone who bought gold in 1999 and held on has done far better than the average stock market investor. Even after the recent decline, gold is still up 515%. For a generation of investors, the golden decade created the illusion that the metal would keep rising forever. Gold’s abrupt reversal has also been painful for companies that were cashing in on the gold craze.

2 India car sales dip for first time in a decade (BBC) Annual car sales in India have dipped for the first time in a decade, underlining the impact a slowdown in its economy is having on key sectors. In the 12 months to 31 March, 2013 sales dipped 6.7% from the previous year, according to the Society of Indian Automobile Manufacturers (SIAM). The industry body said a downturn in the economy and high interest rates were key factors behind the decline. SIAM said the total car sales for the period were 1.89 million, compared with 2.03 million a year earlier.

Analysts and key industry players said that sales were likely to remain subdued until borrowing costs are brought down and the economy starts to pick up pace again. Just a couple of years ago India was one of the fastest growing car markets in the world, seeing annual sales increase by as much as 30%. At that time, many analysts predicted car sales in India were on track to hit the 9 million mark by 2020.

However, things have changed dramatically since then. Between March 2010 and October 2011, India's central bank, the Reserve Bank of India (RBI), raised interest rates 13 times. Though the bank has announced three rate cuts since then, the cost of borrowing still remains high, with the RBI's key rate currently at 7.75%. At the same time, India's economic growth has also slowed sharply, denting consumer sentiment and demand. The economy is now forecast to have grown by 5% in the year to 31 March 2013, the slowest pace in a decade.

3 George Soros on how to save EU from euro crisis (The Guardian) If my analysis is correct, a simple solution suggests itself. It can be summed up in one word: eurobonds. Eurobonds are the joint and several obligations of all member states. If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous. The danger of default would disappear and so would the risk premiums. The balance sheets of the banks would receive an immediate boost and so would the budgets of the heavily indebted countries because it would cost them less to service their existing stock of government debt.

Individual countries would still need structural reforms, but the main structural defect of the euro would be cured. It would be truly like waking from a nightmare. To avoid any misunderstanding, I am proposing the conversion of the existing stock of government bonds into eurobonds, not the redemption scheme put forward by chancellor's council of economic advisors.

This is how my proposal would work. The eurozone would establish a fiscal authority that would be in charge of issuing eurobonds. Its board would be composed of the finance ministers with an independent chairman elected by the board. Voting would be weighted by the GDP of each country. Countries that are in violation of the fiscal compact would not be allowed to vote. Countries that are in compliance would be allowed, but not required to convert their national debt into eurobonds.

I would like to emphasise how important the European Union is not only for Europe, but for the world. The EU was meant to be the embodiment of the principles of open society. That means that perfect knowledge is unattainable. Nobody is free of prejudices and misconceptions; nobody should be blamed for having made mistakes. The blame begins only when a mistake or misconception is identified but not corrected. That is when the principles on which the European Union was built are betrayed. It is in that spirit that Germany should agree to eurobonds and save the European Union.