India's Convoluted Gold Scheme

There's been a lot of talk about this today, highlighted by a dedicated post at ZeroHedge this evening. In the hope of minimizing the confusion, I thought we should give this topic its own thread.

Basically, here's the deal.

Indian citizens have long recognized the value of owning and saving in gold...and for good reason. As the Reserve Bank of India has aggressively devalued the rupee over the past 5 decades, the value of gold in rupees has skyrocketed! See for yourself:

By some estimates, private holdings of gold in India exceed 20,000 metric tonnes. Though a sensible person would see this as a long-term positive for India, the Keynesian brain trust of the RBI see this as short-term negative, instead. Why? Because the Indian central planners would prefer that regular Indian citizens save in rupees, not gold, thus increasing demand for rupees and driving up, or at least stabilizing, its value. Keep in mind, when an Indian citizen buys gold, he/she is selling rupee to do it. Therefore, more gold imports equals downward pressure on the rupee.

So, in the hopes of decreasing gold import demand, the disingenuous larcenists at the RBI have cooked up the scheme outlined in the document below. Please scroll through it in order to see for yourself what the intent of this program is.

Draft Gold Monetization Scheme by zerohedge

To sum up, here is what the RBI intends to do:

  1. Collect gold from regular citizens. Offer to store it for them. Even pay them interest. The RBI has even gone so far as to make the interest paid tax-free, in order to entice more users to the system.
  2. The collected gold gets reassayed and melted into conventional bars and coins.
  3. Indian banks then sell this very same gold to gold consumers such as Indian jewellers. The effect is the same as Western leasing and rehypothecation. Simply put, there will now be at least two beneficial owners of the same ounce of gold.
  4. By utilizing this domestic "supply", the RBI hopes to curb gold imports. By extension, this eases the selling pressure on the rupee and boosts its value.

So, in the end, the key here is whether or not the average Indian citizen is gullible enough to entrust their gold to this new, government-backed ponzi scheme. When I asked Andrew Maguire about this last week, he laughed at the notion, saying something to the effect that "no way the Indian people are stupid enough to fall for that". I'm not so sure. As P.T. Barnum-Gupta-Singh once said: "There's a sucker born every minute, even in India". Sadly, I'm sure he's right. With Indian gold import demand on pace to reach about 800 metric tonnes in 2015, shaking loose just 4% of India's domestic "supply" would negate the need for further imports.

Therefore, this is a story that we'll have to closely monitor. In the meantime, if you're reading this from India OR if you know anyone there, please dissuade them from participating in the program. Not only does it damage global gold demand, at the grass roots level these ordinary folks are going to get taken to the cleaners. If you think for one second that your gold on deposit at an Indian bank is just going to be sitting there, earning "interest" and waiting for you to come by and pick it back up at the time of your choosing...well, I've got some nice swamp land south of Kolkata I'd like to sell you.

Please warn your Indian friends against participating in this scheme...before it's too late.



cashonly's picture


A first!!

are the BRICS preparing to make their move?  India being told to 'stock up' now? 

I doubt the Indians (majority) will fall for this scheme, after all why did they buy gold in the first place?

silver66's picture


All the Indians I know do not view gold as gold but simply as wealth


imfd's picture


I don`t see any problem here, it just seems to me that the banks are creating a hedge against the shorts going long which would cause a ripple in the derivatives market forcing primary dealers to liquidate their shorts before the longs do. Taking into account the overseas liquidity angle, it is possible that the RBI wishes to hedge against a dollar rise which would force a further round of QE in the Eurozone, which in turn would cause the Rupee to strengthen due to the Swiss being now unpegged aginst the dollar. Should the Chinese unpeg the Yuan from the dollar, the resulting turmoil in the markets would cause havoc in the global indexes, indeed forcing a potential return to price controls and potentially trade embargoes too, this would be disastrous as far as equities are concerned and bonds would suffer also because of the rush to perceived safe havens. Gold will not escape the carnage just because it never does these days, just my humble opinion, that`s just how I see it, :)

Just to clarify, I don`t have a clue what i`m talking about, just emulating TPTB, cheers !

surfeitndearth's picture

Sprott Global

From Sprott: May 20, 2015

Gold Is a ‘Barbarous Relic’ but These Are ‘Barbarous Times’: Jayant Bhandari

At around $1,200 per ounce as of May 19, gold has remained relatively steady over the last year and a half. Buying in physical gold markets has helped prevent further slides.

India in particular has been a major purchaser of physical gold. In 2009, the Indian government made headlines by purchasing 200 tons of gold from the IMF1 and Indian savers have been major buyers of gold on international markets.

Jayant Bhandari emigrated from India at age 36. Since then, he has kept a close eye on India’s economy and markets.

Earlier this year, he made a prescient call in Sprott’s Thoughts that the Indian stock market was likely to come down.

What is Jayant’s take on India’s demand for gold, and what does it mean for us?

G-Rod's picture

Wearing Rupiah Bank Notes

On your wedding dress, instead of Gold - just isn't going to look right.

If the average Indian fall for this scheme, their gold will be stripped from India and disappeared.

boomstick's picture


you just broke my brain

priyam10's picture


I doubt many people will participate in this program

sbucks's picture

Indian culture views gold as a family asset

I doubt the people of India would fall for such a scam since they have never trusted the government nor its currency.  I have several Indian friends and their views about gold is that it is a family asset to be handed down to generations, or used in trade, dowery, etc., and it is not viewed as an investment just to make a profit in paper fiat currency that has a history of becoming worthless time and time again through the ages.

Swineflogger's picture

@VOTE: Early and Often

1337    EDIT: "disingenuous larcenists"  Damn Craig  you old word weaver you  

kardnul's picture

Turkey aleady has a program

"Many people in Turkey – which has one of the lowest private savings rates among major economies – keep gold as security for a “rainy day” rather than products offered by banks. According to estimates, Turks hold some 3,500 tons of gold. Banks have sought to capitalize on the tradition by offering accounts denominated in gold.

“We were thinking about putting all that gold back into the financial system somehow, so we decided to create gold accounts for our clients,” said Seda Yilmaz, marketing manager of the Kuveyt Turk Bank, the first to do so, in 2007. “So we bought 1 kilo of gold, and the demand on the first day was 3 kilos. It was a very good decision, so we decided to move ahead.”


Turd Ferguson's picture

Thank you for noticing


That was my favorite line, too. And it fits!


The unauthorized taking and removal of the Personal Property of another by an individual who intends to permanently deprive the owner of it; a crime against the right of possession.

Larceny generally refers to nonviolent theft. It is a common-law term developed by the royal courts of England in the seventeenth century. In the United States, most jurisdictions have eliminated the crime of Larceny from statutory codes, in favor of a general theft statute.

The crime of larceny was developed to punish the taking of property in nonviolent face-to-face encounters, and to set it apart from Robbery. Robbery involved some measure of violence in connection with theft, and the courts did not feel that a nonviolent theft should warrant the same punishment. Larceny was nevertheless punished severely. A person convicted of larceny could receive the death penalty or be sentenced to many years in prison.

SS121's picture

India's Gold Scheme - Creating MOPE context...

TPTB don't really care if anybody actually takes part in the program.


The program itself creates the Perception that there is now a connection between the gold held by the people, and the fiat currency issued by the CB.  


With the Perception that the people's gold is now sort of all connected up with the CB's fiat currency, this perception can now be Managed.  How does the system manage the people's perceptions?  "charts and stories"

Now there can be "Official Reports" (lies) about how many tons of Gold the people are turning in, and "presto" they've just created more fiat gold, AND can leverage this fiat gold to run up their currency (chart) OR use it to "back" a new world currency, or whatever "story" they dream up.


It creates the perception of a  link between the system and the people's actual phyical Gold.  Which the system can now manage via "charts and stories"


create the perception of a link between privately held gold and the system (CB)... then use this perceived link to validate the system... hmmm, this sound familiar? 

gold slut's picture

@ SS121

I used to think of myself as a morbidly sceptical individual when it came to TPTB, but then I started reading this blog a few years ago.

Well done sir, you just posted what was going though my mind.,...

You really can't be sceptical enough when it comes to these creatures, top man, excellent post.  Must now rush off and hand over all my gold like all the Indians are.....  Yeah, THAT'S GOING TO HAPPEN!!!

lakedweller2's picture

@TF Model Penal Code

Theft by Deception under the Model Penal Code:

1.  Deception occurs when a person knowingly:

    a. Creates or confirms another's impression which is false and which the defendant does not believe to be true: or   (HFT, Algos, Derivatives???)

   b.  Fails to correct a false impression which the defendant previously has created or confirmed, or

   c.  Fils to correct a false impression when the defendant is under a duty to do so; or

   d.  Prevents another from acquiring information pertinent to the disposition of the property involved; or

   e.  Sells or otherwise transfers or encumbers property, failing to disclose a lien, adverse claim, or other legal impediment to the enjoyment of the property when the defendant is under a duty to do so, whether that impediment is or is not valid, or is not a matter of official record; or  (think about hypothecation, allocated accounts, leveraging gold accounts, multiple ownership, etc...)

   f.  Promises performance which the defendant does not intend to perform or knows will not be performed.  Failure to perform, standing alone, however, is not proof that the defendant did not intend to perform.

These are the criminal statutes that take down Wall Street and the Regulators.  The SEC or CFTC or Justice claims that Wall Street actions are borderline because Glass Steagall is overturned is corrupt bullshit.

The criminal statutes apply no matter what Wall Street acts are overturned.  Theft is theft is theft.  But in White Collar Crime, "Theft By Deception" is always the guiding laws as it deals with...."deception", fraud, deceit, lies, etc to take someone's property.

Everyday Wall Street activity is theft by definition.

That is the corruption that has to be overcome and since every regulator under the direction and control of the Administrative Branch is not doing their can only be by order.

Impeachment and criminal charges at the highest level have been in order for many years.

lakedweller2's picture

Let's Also Consider the Definition of "Deprive"

To Deprive means:

    a.  to withhold property or cause it to be withheld from a person permanently or for such period or under such circumstances that all or a portion of its use or benefit would be lost to him or her; or

    b.  To dispose of the property so as to make it unlikely that the owner would recover it; or

    c.  To retain the property with intent to restore it to the owner only if the owner purchases or leases it back, or pays a reward or other compensation for its return; or

    d.  To sell, give, pledge, or otherwise transfer any interest in the property; or

    e.  To subject the property to the claim of a person other than the owner.

Whoopee, there are some conditions that apply to the everyday activity in the gold market.

This is why no one is in jail...because everything they are doing to manipulate all the markets is a form of criminal theft.  Someone gets ripped off on every trade.

That's why the Attorney General of The US can be nothing but a pawn.

Flying Wombat's picture

Indian Banks Worried About Government’s Harebrained....

Doc and I talked to James Turk a couple of hours ago about Indian policy makers' dream of tapping her population's gold horde.  Tune into the SD Weekly Metals & Markets show this Saturday for the discussion, but the short summary is that he's a bit skeptical about India being able to pull this off given cultural affinity for gold.

Even Indian bankers have serious concerns.  See my article from earlier this week. -- Eric Dubin

# # # #

Indian Banks Worried About Government’s Harebrained, Desperate Attempt To Get Gold

Click here:

NW VIEW's picture

There must be a lesson within:

boomer sooner's picture

Quote from Mr. Dubin's article

"The Indian government is concerned about continued high imports of gold having a negative impact on the Rupee and inflating the country’s current account deficit.  No doubt, pressure from western nations like the United States have also contributed to the Modi government’s betrayal of campaign promises to liberalize the Indian gold industry."

I am wondering if India's government is not using the gold bank deposit  to lower imports as a ruse, but use the deposits for increasing the "official" reserves without having to go purchase the gold.  Maybe not enough gold in the market if India needed to increase reserves to have a seat at the table with China and Russia.

A. Tad Askew's picture

Tax Free Interest...

Do tax free rupees devalue at a slower rate than taxable?  Inquiring minds want to know....


idahosinker's picture

Home run

Home run

idahosinker's picture

Home run

Home run

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