India’s gold policy over the last several years is about as dysfunctional as any government policy I have ever seen, and that’s saying a lot. In case you need a reminder, here are a few posts I have written on the subject:
In a nutshell, Indians were buying too much gold for their government’s comfort, so the “authorities” stepped in with duties and import restrictions in an attempt to stifle the trade. So smuggling soared.
Fast forward to today. It appears the government has finally realized they can’t stop their citizens penchant for gold, so they have decided to dump central bank gold onto the market. What is incredible to me is that they are justifying this with a so-called “swap” into phantom gold at the Bank of England. The favored global hub of shady, rent-seeking, banker oligarchs.
What’s even more interesting about this is the fact that so many Central Banks seems to be swapping or selling their gold to Western interests. Most notably Ecuador selling to Goldman Sachs, which I highlighted in the piece: Ecuador to Transfer More Than Half its Gold Reserves to Goldman Sachs in Exchange for “Liquidity.”
Now from Reuters:
MUMBAI, July 2 (Reuters) – India’s central bank said on Wednesday it has sought quotes from banks to swap gold in its own vaults for international-standard gold, aiming to improve the management of its reserves.
The Reserve Bank of India said the operation would “standardise the gold available with RBI in India with respect to international standards” and the gold acquired would be delivered to its overseas custodian, the Bank of England.
By holding gold reserves in London, the RBI would gain flexibility to mobilise them if needed to defend the currency. It shipped some of its gold holdings to Britain in 1991 as part of a series of emergency measures to tackle a financial crisis.
This begs the question of who really needs the gold, the RBI, or London bankers?
According to the World Gold Council, India holds the 11th-largest gold reserves of 557 tons. At current market prices, they would be worth nearly $24 billion. It was not immediately clear how much of that would be swapped.
Market participants said the central bank was likely to offload its old gold onto the local market in India.
At least the people will get a hold of it as opposed to criminal Central Bankers.
That would have the beneficial effect of boosting domestic gold supply without hitting India’s current account – which faces renewed pressure as the conflict in Iraq has pushed up India’s oil import bill.
“It’s a good move by the RBI, this will at least ease the stock requirement of the jewellery industry,” said a senior official with a foreign bank that supplies gold to India.
You have to wonder if this in any way relates to concern about the upcoming Swiss referendum on the country’s gold reserves, which Parliament has been fighting hard to prevent from happening. For example, back in May Bloomberg reported that:
Swiss parliamentarians urged rejection of a popular initiative that would curtail the Swiss National Bank (SNBN)’s independence by requiring it to hold a fixed portion of its assets in gold.
Members of the Swiss parliament’s lower house voted 129 to 20 with 25 abstentions today against the plan, which demands that at least 20 percent of the central bank’s assets be in gold. It would also disallow the sale of any such holdings and require all SNB gold be held in Switzerland.
No date for a national vote has yet been set.
Well it appears based on a Bloomberg headline from this morning that a date has been set. A friend sent me the following:
(BN) *SWISS TO VOTE NOV. 30 ON `GOLD INITIATIVE’
There may be some very concerned bankers in New York and London this weekend.
Full article here.
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