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Indian government admits 'gold-backed' means just pretending to have gold

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Published : December 18th, 2012
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Thanks to the government of India for acknowledging today that the great advantage of "gold-backed financial instruments" is not to their purchasers but rather to the government itself in its campaign to talk Indians out of their gold to reduce the country's current account deficit.

That is, as the Press Trust of India reports in the story appended from The Hindu, replacing the investment of the Indian people in gold with "gold-backed financial instruments" can reduce gold purchases only insofar as those "gold-backed financial instruments" don't actually have all the gold that has been sold in their name.

But no thanks to the Indian government for thinking its people to be so stupid.

"In its mid-year economic analysis tabled in Parliament on Monday," the PTI story says, "the government said gold-backed products would help investors enjoy the benefits of investment in the metal without investing in the physical commodity."

But of course investing in a merely "gold-backed" product is actually a mechanism for forfeiting the benefits, by nullifying the price support that otherwise would be given by one's own investment.

Besides, the Indian government's concern about its trade deficit seems a bit misplaced. Yes, Indians pay rupees for gold and as India has little domestic gold mining, the rupee is exported for imports and becomes weaker and the gold price becomes stronger. But it's not as if India is poorer by the transaction. To the contrary, India is richer since the Indian people still have the gold. Those who are poorer are those who traded gold for rupees.

The real objection of the Indian government here seems to be that the Indian people have control of the better wealth-preservation mechanism, the metal, and the government is stuck with the inferior wealth-preservation mechanism, the rupee.

The solution would seem to be to give the Indian people what their behavior suggests they want: a gold currency. That would facilitate what the Indian government claims to want: mobilization of the vast wealth stored by the Indian people in metal. But of course that would also risk smashing India's enduring colonial masters in the Western banking system, who can keep controlling the world only as long as they control currency creation. Like South Africa, another country with a lot of gold, India only thinks that it's free.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Government Mulls Gold-Backed Schemes to Curb Imports

By the Press Trust of India
via The Hindu, Chennai
Monday, December 17, 2012

http://www.thehindu.com/business/markets/centre-mulls-goldbacked-schemes...

Attributing the surge in gold imports to the high current account deficit, the government on Monday said it was considering schemes such as gold deposits, accumulation plans, gold-linked accounts, and pension products to curb demand for the precious metal.

In its mid-year economic analysis tabled in Parliament on Monday, the government said gold-backed products would help investors enjoy benefits of investment in the metal without investing in the physical commodity.

"Now gold-backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal, are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports," the review said.

However, gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls, it added.

The Finance Ministry's chief economic adviser, Raghuram Rajan, told reporters: "We are worried about gold imports. It is an unproductive instrument. The way to curb holding of gold is to create more attractive financial instruments. Some gold-linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investment."

The current account deficit has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.

"We are worried about the deficit. We want to take steps to monitor it," Dr. Rajan said.

The Reserve Bank of India has unveiled a slew of curbs on gold purchases and financing as imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2 per cent in the year.

In 2011-12 India's gold imports stood at $60 billion and the quantum of import was 1,067 tonnes.

A Finance Ministry official said the imports had shown signs of moderation and that gave the government hope that the deficit would be lower this fiscal.

In the April-June quarter of the current fiscal, however, gold imports had contracted by 18.4 per cent year-on-year to Rs.71,912 crore ($13 billion).

Gold imports into the country had risen considerably in the last 3-4 years.

* * *



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Chris Powell is the secretary of the Gold Anti-Trust Action Committee (GATA) which has been organized to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities.
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