Indian Government Gold Schemes Destined To Fail – Dave Kranzler

The new schemes are aimed at monetizing some of the huge amounts of gold believed to be in private hands in India – in particular some of the religious temples have huge hoards of gold which have been built up over the years. The idea is to give gold holders a way of generating income from their bullion holdings, although the general distrust of the economic system which prompts Indians to hold gold in the first place will indeed likely have a limiting impact on the take-up.   Lawrie Williams, LINK

TND Guest Contributor:  Dave Kranzler

The India Government is rolling out a plan designed to coerce Indians into putting their gold into banks in exchange for receiving interest on the gold deposits.  The “Gold Monetization Scheme” and “Gold Sovereign Bond Scheme” are both aimed at “monetizing” the gold held by private citizens.  But why are the banks in India interested in getting ahold of the massive amount of privately held gold in India?  In reality, these “schemes” are nothing more than a thinly disguised “scheme” to implement a fractional gold system.

I highly suspect that the Fed/U.S. Government was instrumental in pushing this plan through the Indian Central Bank and Finance Ministry.  India will import at least 1,000 tonnes of gold this year (easily over 1,000 tonnes when smuggling is considered).  This is putting extreme stress on the ability of the western Central Banks/bullion banks to source gold that can be delivered into the big eastern hemisphere buyers, who require and demand physical delivery.

It’s in the Indian DNA to buy and hold possession of gold in all forms.  They have inherent distrust of the economic system, which is why they buy and hold physical gold in the first place.  In fact, as the article linked above references, there’s been a gold deposit program in place since 1999 but has attracted only 15 tonnes since its inception.

Exchanging gold in hand for a piece of paper that promises the payment of interest plus the return of that gold at a specified date in the future leaves the investor exposed to a high degree of counterparty.  Unquestionably the Indian Government wants to this gold so that it can turnaround and lease it to the western Central Banks, who are in desperate need of a steady supply of gold to deliver to China.  As for the extreme degree of the counterparty risk involved, just as the German Government…

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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