India’s gold imports for the 2014–15 financial year was 900 tonnes. That’s a massive 36% higher than the previous year’s 665 tonnes.
If you’re familiar with Indian culture, you’ll know it’s not their government bringing all that gold in. It’s the people.
To Indians, gold is the ultimate way to transfer wealth from generation to generation. It’s safe, and of great cultural importance. The amount of gold ornaments and gold jewellery a family owns is the ultimate status symbol.
When it comes to a wedding or anniversary, nothing tops gifting gold.
As a result, there’s 20,000 tonnes of gold among the 1.2 billion people in India. To put that in perspective, that’s four time the amount of bullion in Fort Knox.
This is where the Indian government comes in.
In their view, people are ‘hoarding’ their gold, and that store of wealth does nothing productive for the Indian economy.
Last week, India’s Prime Minister Narendra Modi unveiled a plan to ‘tap the stockpiles of the precious metal’ says Bloomberg. The idea is that the Indian government can boost the country’s ‘economic resilience’ by offering an alternate investment. As Bloomberg wrote:
‘Modi’s administration wants to draw more of the holdings into the financial system to trim purchases from overseas and boost the country’s economic resilience. Bullion will be a help to India’s growth only when it enters the banking system, and large imports should be discouraged.
‘Under the gold-deposit plan, investors can deposit a minimum of 30 grams with banks to earn interest, and at maturity either redeem the gold or cash, according to a government statement in June.’
Can you see what the government is doing?
This could be the beginning of the gold confiscation in India. Jim Rickards, the strategist of Strategic Intelligence, reckons this is start of Indian people ‘never seeing their gold again’. Adding that if Indian people were smart enough to accumulate gold to begin with, hopefully ‘they’re smart enough to avoid this roach motel’.
Right now the government is pretending it’s a way to bolster the local financial system. But regulation changes over time could mean that the option to redeem for ‘gold or cash’ could simply become the option to redeem for cash only.
From there, it’s only a matter of time until this ‘alternative investment option’ becomes a compulsory service for families with gold holdings over a certain amount.
You can be sure that other governments will watch how successful this financial initiative is. There’s no doubt this could be the lead in to a return of government confiscation of gold.
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Could it happen here?
It’s clear that the Indian government is taking the first step to boost its gold holdings.
As of September 2015, the Indian government had about 557 tonnes of bullion in reserves.
That’s only a fraction of the 8,133 tonnes the US has stored in Fort Knox. Germany holds the next highest amount, at 3,381 tonnes.
However, India’s bullion reserves are seven times Australia’s. Currently Australia has a paltry 79 tonnes of gold to its name.
In fact, out of the top 40 countries with the highest gold reserves, Australia comes in at 38. We are above Kuwait by three quarters of a tonne. But have significantly less than Thailand, Libya, Greece and Algeria.
There’s a reason why countries stockpile gold. When a currency becomes worthless, gold is can be a payment instead. And boosting gold supplies is one way to ensure a currency is still viable.
I have no doubt that India’s ‘alternate investment’ plan is a shuffle towards the government accumulating more gold. While it appears on the surface to be an innocent plan to give Indians different investment choices, the real reason is that the Indian government doesn’t have gold confiscation laws in place.
Whereas Australia does.
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What Australia doesn’t have, however, is a population that hoards gold.
So few Aussies hold bullion that there aren’t even statistics on it.
The Perth Mint stores around $2.5billion in allocated and unallocated gold. Three quarters of the Mint’s customers hold unallocated gold. Of that, over half of those customers are located in North America.
A much older statistic, from 2008, says over 45% of all Perth Mint gold stores belong to international customers.
This tells you it’s pointless for the government to raid Australia’s private bullion holdings, as most of us don’t even bother with it.
Instead, if the Aussie government wanted to boost their own bullion reserves, there’s one simple step that they’d take.
Australian gold mines pumped out 270 tonnes in 2014. Local gold miners generally can produce 200–300 tonnes of gold each year.
This makes the mines a perfect target.
All of this is laid out in Part IV of the Banking Act 1959.
The Reserve Bank of Australia have the ability to set the price of gold at any time.
Which means the RBA could tell the mines what they are going to pay for the gold, and set whatever price they like. Once this is in place, the next step is to nationalise the mines, leaving any gold dug up property of the RBA.
And in those two moves, the Aussie government would completely control the gold market in Australia.
Now, these laws are currently ‘suspended’. Suggesting that right now there’s no immediate threat to any gold miners. But remember the laws are in place. There’s no need for debate in parliament or public consultation.
One interesting clause though, is Section 47. Apparently ‘wrought’ gold is not included in the any gold confiscation plan. The loose legal language implies that jewellery and gold ornaments are exempt from any wealth stealing.
The loophole means that the government may take bullion and coin, but not the chain around your neck.
Also, this act only refers to gold, and not silver.
If you’re worried about the government coming after your bullion stash one day, buy necklaces this Christmas.
Because the Aussie government already has laws in place to take all the gold bullion it wants.
Editor, Strategic Intelligence