War on Gold: India bans Import Consignments

Well we don’t need a conspiracy plot to know that India’s gold trade has repeatedly been under assault from her government.

From the Reuters:

Gold buying in India, the world's biggest buyer of the metal, came to a halt on Tuesday, a day after the central bank restricted gold imports on consignment basis and jewellery sellers saw a sharp rise in festival sales.

On May 13, the Reserve Bank of India (RBI) banned gold imports through consignment, and traders awaited for more clarity from the central bank. Gold and silver imports rose 138 percent in value terms to $7.5 billion, data from the trade ministry showed, increasing pressure on the current account balance.

This has likely been in reaction to the fantastic 138% jump in gold imports last month, which has been spurred by a demand spike following gold price's flash crash fomented by Wall Street.

From the Hindu Times:

Terming the 138 per cent surge in gold imports last month as an ‘aberration’, the government on Tuesday expressed the hope that the appetite for foreign gold would subside by next month due to the high inventory costs.

Overall, the recent surge in imports has attributed to the drop in global commodity prices, including gold.

Talking to reporters, Economic Affairs Secretary Arvind Mayaram said it appears that to hedge against future rise the traders in India have imported large quantity of gold.

If it is true that 138% surge in gold imports has been an ‘aberration’, then why the need for the import ban? Obviously the Indian government wants to make sure that the proclaimed ‘aberration’ becomes a reality through social controls.

What such controls will do instead is to drive gold trades underground and push up premiums as supply shrinks.

Media appears to have already been in cahoots with the government in the implicit campaign to downplay or shoot down India’s feverish gold trade. 

Taking a look at last Friday’s headlines from Reuters, it says "Gold Stuck in a Trading Range, physical demand down"

Has physical demand really been down?

More from the report: “Gold futures edged lower on Friday, but still stuck in familiar trading range, though demand from physical buyers was down compared with last week amid limited supplies ahead of a major gold buying festival.” (bold added)

Physical demand has been down because lack of supply? Gee. Lack of trade due to limited supply doesn’t necessarily mean physical demand is down. This may be so because limited supply means extremely high premiums. 

While this may be a journalistic gaffe, on the other hand, it could well be a misrepresentation.

All these reveals how financially desperate governments have been tightening the noose on the public’s savings by attempting to wring out currency alternatives such as gold and bitcoin.

Desperate times calls for desperate measures. 

Here’s a guess, India’s government will fail in her quest to quash the gold trade, which has not been only a cultural affinity but also a monetary-purchasing power issue.