Tuesday, October 25, 2005

Freeing of Indian Gold Imports on Hold as Reserve Bank Puts Spoke in Wheel

6:53p ET Sunday, October 23, 2005
Dear Friend of GATA and Gold:

The news story from India appended here shows the ordinary and candid work of one particular central bank that, fearing competition from gold, seeks to discourage gold ownership among individuals and to steer their wealth into paper financial instruments instead.

The argument over just how productive and socially useful gold is as an investment is an old one, but perhaps even advocates of a system of fiat currency and central banking will have to acknowledge that what is happening in India, as described below, is another skirmish in their long-running war against gold, their war against any standard of value outside their control. That war is waged on one front or another every day.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Freeing of Indian Gold Imports on Hold
as Reserve Bank Puts Spoke in Wheel

By Subhomoy Bhattacharjee
The Times of India / Economic Times
Gurgaon, India
Monday, October 24, 2005

NEW DELHI -- Freeing of gold imports may take some more time, as the Reserve Bank of India has advised the government to go slow on the proposal.

This would mean the plan to allow more agents to import the metal to meet the ever-increasing demand for gold could be delayed beyond this fiscal year.

RBI has advised caution because there has been a recent spurt in imports of gold into the country. Since gold also doubles as an instrument of savings for large sections of the economy, the central bank is examining whether there is an incipient trend among some investors to use the metal to hedge themselves, at the cost of savings in the financial sector.

Addressing the Assocham AGM on Friday, finance minister P Chidambaram said the government would prefer that investors put their savings in financial instruments instead of using gold and other physical assets.

The proposal involved allowing a large number of private importers and jewellers to directly import gold from abroad. Currently only a few designated agencies such as MMTC are allowed to import gold bars. Since 1997 the RBI has authorised these agencies, including commercial banks to import gold, but only for sale or loan to jewellers and exporters. At present 13 banks are active in the import of gold.

Under a decentralised gold import regime, there could be as many as 2,000 importers. The finance ministry and RBI are looking at a long-term vision of developing a gold deposit market in India. Consumers could then buy standardised gold of smaller denominations at retail counters, and could keep them with banks in exchange for gold certificates.

The development of a more robust market for the yellow metal will also kill the residual hawala that might be taking place through gold smuggling because of the marginal premium commanded by the metal in the domestic market, caused at present by restrictive imports. A thriving gold deposit market in the future could also help monetise large amounts of gold lying with households. This could help divert such savings for productive investments in the economy.

India is the world’s largest consumer of gold in jewellery, with an annual demand estimated at about 800 tonnes.

While the country exports about 60 tonnes of the metal annually, it imports about 600 tonnes. According to figures with the Multi Commodity Exchange of India, the total stock of gold in the country is about 13,000 tonnes, which is about 9 percent of the world stock.