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Indian Central Bank Kills "Trillion Rupee Gold Coin" Idea, Enforces More Gold Controls

Tyler Durden's picture




 

India's official problems with seemingly endless gold demand are well known: with popular demand for gold soaring, and especially so in the past month following the forced price smash of spot paper gold prices, it has gotten so bad that India's April trade deficit soared to $17.8 billion as a result of a 138% YoY increase in business gold imports.

Further compounding the desperation of the government to enact firm controls on the free dissemination of gold in a country which according to WGC estimates has 10% of all world gold in its possession (18,000-19,000 of accumulated gold stock) is that in India loans against gold are not only surging, but continue to be one of the primary means for citizens to monetize the gold in their possession, and to get paper currency from banks all too willing to lend out cash against gold.

Which is why in early May, several weeks before the government directly addressed the people pleading for the Indian population to "contain its passion for gold", the Reserve Bank of India issued a directive prohibiting the granting of advances (i.e., loans) against all non specifically minted gold coins sold by banks (excluding loans against gold ornaments and other jewelry). To wit:

As per extant instructions, banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds. While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank’s guidelines regarding restrictions on grant of advance against gold bullion.

Ironically, without imposing specific dimensional limitations, there was the risk that India may boldly go where only a bunch of financially illiterate, click-baiting media dilettantes, desperate to pitch the idiotic idea of a "trillion dollar coin" made out of platinum to bypass the debt ceiling limit (at least until the Treasury was forced to firmly crush this nonsense with a just as idiotic public statement), and arbitrage RBI directive loophole to create a massive coin, against which banks would subsequently lend out cash.

Today, any hope that India may indeed be the first real source of a trillion dollar coin, one made out not of platinum but gold, were crushed, following a clarification by the central bank that there is a firm, 50 gram weight limit on all permitted "specially minted gold coins." From the RBI:

Since specially minted gold coins sold by banks may not be in the nature of “bullion” or “primary gold”, it was indicated in the mailbox clarification dated April 5, 2011 that there would be no objection to the bank granting loans against these coins. However, as pointed out in the monetary policy statement, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank’s guidelines regarding restriction on grant of advance against gold bullion. Accordingly, it is advised that while granting advance against the security of specially minted gold coins sold by them, banks should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the Board approved limit.

Well, there goes any hope of a "coin" weighing several million tons. It also means that the record for the world's largest gold coin will remain with the Australian Mint and its 1 tonne gold coin for quite time.

Also of note in today's RBI, was the clarification that no loans made against ETF shares as "collateral" may be made either. This will hardly come as news to anyone, considering nobody really knows how many times, and to whom the primary gold in said ETFs has been lent out, rehypothecated, and otherwise seen its ownership title diluted to near zero.

...we have also been receiving references from certain banks asking whether advance against units of gold Exchange Traded Funds (ETF) and gold Mutual Funds is permitted. As these products are backed by bullion/primary gold, it is clarified that the restriction on grant of loan against “gold bullion” stipulated in terms of our circular dated July 22, 1978 referred to at para 2 above, will also be applicable to grant of advance against units of gold ETFs and units of gold Mutual Funds.

Ironically, loans made out against solid-gold shirts such as this one appear to still be perfectly valid. Expect much more (and much heavier) golden clothing in the coming weeks and months as demand to lock in "low" rates (in this New Normal who can possibly justify a 7.25% rate as low? Apparently, several hundred million inflation-weary Indians, that's who), finds ways to bypass all regulations.

Finally, and just in case there is any confusion whether Indian demand for gold will subside, the following warning uttered by FinMin Chidambaram ...

  • CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED

... has assured that demand for gold, of any shape, size, and denomination will surge even more. Because nothing makes an object more sought than the government threatening to prohibit it. As a reference, please see the ammunition in inventory in your local neighborhood Wal-Mart.

 

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Mon, 05/27/2013 - 17:14 | 3601871 Arrowflinger
Arrowflinger's picture

Breaking News - Bernanke Kills Golden Unicorn

Mon, 05/27/2013 - 17:28 | 3601915 BTFDemocracy
BTFDemocracy's picture

That coin would have to be quite large:

All the Gold in the World- Visualized

http://demonocracy.info/infographics/world/gold/gold.html

 

 

Mon, 05/27/2013 - 17:39 | 3601940 ZerOhead
ZerOhead's picture

CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED

Just send the shiny stuff over here and we'll look after it for free. Wouldn't want to see all those heavy imports cause your subcontinent to sink into the earth's mantle after all....

Mon, 05/27/2013 - 17:53 | 3601981 knukles
Tue, 05/28/2013 - 01:46 | 3602830 TwoShortPlanks
TwoShortPlanks's picture

Doubled post from prior thread...

The potential future purchasing power of physical Gold as an asset can be best explained in six ways;

1.       Analogy: Principles of extracting power from explosive material

2.       Analogy: Rothschild’s cornering of post war European Debt

3.       The removal of mass ignorance and the Impossibility Bias

4.       Trust within the [Mercantile] Exchanges, Commodity Trading Centres and Supply Chains

5.       Financial Markets

6.       The ‘Permanent Squeeze

http://twoshortplanksunplugged.blogspot.com.au/2013/05/gold-going-goinggone-in-this-post-i.html

7 pages as to why I believe Gold is about to go off like a Belt-Fed Mortar!

Mon, 05/27/2013 - 18:48 | 3602081 LeisureSmith
LeisureSmith's picture

Hey, at least it's not Larry Silverstein. Does it really matter at this point, long as the guy has some enconomic cred and knows how to teleprompt it's all good..... bad and ugly, with strong emphasis on bad and ugly.

 

I really do like that Kangaroo, but i'd have to buff out that weird animal on the flip side. Freaks me out.

Mon, 05/27/2013 - 19:35 | 3602179 knukles
knukles's picture

Whazzamattah?
You don't like Ozzy Osbourne?

Gotta admit, Cheryl's still kinda hot in a very debased perverted sense...
Just kidding...

Wed, 05/29/2013 - 07:56 | 3602887 Boris Alatovkrap
Boris Alatovkrap's picture

All aboard! Hahahahaha! Aye, aye, aye, aye!

Mon, 05/27/2013 - 17:31 | 3601922 DogOfSinope
DogOfSinope's picture

I strongly advise the guy with the golden shirt to urgently acquire some Kevlar underwear, too.

Mon, 05/27/2013 - 17:16 | 3601875 disabledvet
disabledvet's picture

this is CRAZY TALK i tell you. CRAZY TALK!

Mon, 05/27/2013 - 17:17 | 3601876 jimijon
jimijon's picture

One day the Anuki will come back and look at that one ton gold coin and wonder why we worshipped the kangaroo.

Mon, 05/27/2013 - 17:23 | 3601900 WmMcK
WmMcK's picture

"Anunnaki", Queen of England?

Mon, 05/27/2013 - 17:17 | 3601877 LawsofPhysics
LawsofPhysics's picture

The great thing about "mark to fantasy" is that you can simply decide what you want the value of your assets to be. - "winning"

Mon, 05/27/2013 - 18:06 | 3602012 Arrowflinger
Arrowflinger's picture

Not so great if assets so marked by the financiers are in your 401(k) disguised as "Stable Value" funds

Mon, 05/27/2013 - 18:11 | 3602021 LawsofPhysics
LawsofPhysics's picture

If you are "building wealth" in a 401k, then you are a sucker to begin with.

Mon, 05/27/2013 - 18:31 | 3602050 Arrowflinger
Arrowflinger's picture

Two decades out from 401(k) emancipation, here.

Mon, 05/27/2013 - 17:33 | 3601878 JustObserving
JustObserving's picture

Indians have 20,000 tonnes of gold bought at very low prices.  Now a politician wants to end this wealth building.  Since when have politicians been right?

If politicians block gold sales in India, gold will be smuggled in from Dubai and Thailand.

Gold that cost Rs 175 in India in 1965 is about Rs 90,000 now. There is massive inflation and so Indians will never stop buying gold.

Mon, 05/27/2013 - 18:13 | 3602024 LawsofPhysics
LawsofPhysics's picture

bingo.  Every single time governments use confiscation or price controls, go long smuggling and black markets.

Mon, 05/27/2013 - 17:19 | 3601882 Hulk
Hulk's picture

I never understood why a trillion dollar coin had to be made out of platinum. Just make it out of copper and save a few bucks...

Mon, 05/27/2013 - 17:24 | 3601897 francis_sawyer
francis_sawyer's picture

We couldn't stay on the gold standard... We failed on the silver standard... Even failed on the copper standard... At present ~ we're losing our grip on the zinc standard... But doze wacky bankers are doing well [for themselves] with the ink standard...

Mon, 05/27/2013 - 17:28 | 3601917 Hulk
Hulk's picture

We did indeed fail even on the copper standard. There's an eye opener for you...

Mon, 05/27/2013 - 20:36 | 3602312 stacking12321
stacking12321's picture

i believe there is some "legal" standing for a trillion dollar platinum coin, i seem to remember reading a while back.

apparently the treasury can mint gold, silver, and platinum coins, but the gold and silver coins are fixed in their denominations, while platinum is not so technically they can invent a platinum coin of any denomindation.

here's a couple of pages about it:

http://www.nytimes.com/roomfordebate/2013/01/13/proposing-the-unpreceden...

http://en.wikipedia.org/wiki/Trillion_dollar_coin

Mon, 05/27/2013 - 17:26 | 3601907 RafterManFMJ
RafterManFMJ's picture

Or make it out of cardboard and paste. Let's really save!

Mon, 05/27/2013 - 17:27 | 3601911 Hulk
Hulk's picture

Sorry, I ate all the paste !!!

Mon, 05/27/2013 - 17:50 | 3601970 Cognitive Dissonance
Cognitive Dissonance's picture

Mmmmmmm
Brings back memories from the early 70's of mixing up a batch of wallpaper paste and chowing down on home made gourmet. Or was that harvesting some home grown and firing up the hand made bong? I get so confused in my old age. ;)
(I seem to remember doing both at one time or another. Or was that home grown brownies?)

Mon, 05/27/2013 - 18:42 | 3602073 Clever Name
Clever Name's picture

Y'all are making me hungry, or somethin...

Tue, 05/28/2013 - 16:25 | 3604864 drdolittle
drdolittle's picture

Seems like I remember wallpaper paste smelling tasty

Mon, 05/27/2013 - 17:35 | 3601935 Sudden Debt
Sudden Debt's picture

and I still have a can of gold paint spray in my garage so your idea could work!
tungsten is just to expensive...

Mon, 05/27/2013 - 17:41 | 3601949 ZerOhead
ZerOhead's picture

Try Krugmannite... it's cheaper and even denser...

Mon, 05/27/2013 - 17:34 | 3601929 ZerOhead
ZerOhead's picture

Silicon is clearly the metal of choice in a digital economy.

Of course some anti-Krugmannite wiseass would quickly nickname it the the trillion dollar sillycoin...

Mon, 05/27/2013 - 17:44 | 3601957 cherry picker
cherry picker's picture

They already substituted platinum and gold for paper and its called the greenback.

Mon, 05/27/2013 - 18:02 | 3602006 css1971
css1971's picture

Plastic. It has that seedy banana republic quality feel.

Mon, 05/27/2013 - 17:21 | 3601886 Gringo Viejo
Gringo Viejo's picture

The Indian government is in the tank for the Fed.

Like Japan, another water carrier for wall street.

Mon, 05/27/2013 - 17:31 | 3601918 Kreditanstalt
Kreditanstalt's picture

Those EVIL free markets are EVIL because they are free.  (They hate us for our freedom?)

Central planners getting pretty grubby and desperate...

Put your gold bar on a chain around your neck and it's JEWELRY.  It qualifies....!

Mon, 05/27/2013 - 17:34 | 3601928 Sudden Debt
Sudden Debt's picture

in the end they'll need to find a funding sollution.
and the coin idea is the best they can come up with....

so hold on to your socks when they finally find something they'll press....

and untill than, stack, hoard and save.

Mon, 05/27/2013 - 17:45 | 3601963 gimli
gimli's picture

Just saw this, it's very scary -- only click if you have a strong stomach!

http://www.ft.com/intl/cms/s/0/3b5311e6-c232-11e2-8992-00144feab7de.html...

Mon, 05/27/2013 - 18:16 | 3602004 Bay of Pigs
Bay of Pigs's picture

The final nail in the coffin?

Jabba the Hutt? LOL...

Mon, 05/27/2013 - 17:50 | 3601975 gorillaonyourback
gorillaonyourback's picture

Bullish for stocks right............ till one day it aint lololololol

Mon, 05/27/2013 - 17:58 | 3601993 youngman
youngman's picture

India needs some RAP stars...that will get the big coin a movin...hangin round the neck of the DUDE....

Mon, 05/27/2013 - 18:19 | 3602032 Quinvarius
Quinvarius's picture

They are going to buy the gold either way.  This is merely choking off consumer credit.  It will drop their economy down several more notches.

Mon, 05/27/2013 - 18:23 | 3602038 JustObserving
JustObserving's picture

Mr Chidambaram, there is about $2 trillion in illegal Indian money sitting in Swiss banks.  How about focusing on that rather than $40 billion in gold imports a year?  How about controlling inflation so people are not forced to buy gold?

Mon, 05/27/2013 - 19:26 | 3602161 wstrub
wstrub's picture

They want the physical gold and will lend against it then confiscate it when the loans don't or can't get paid because the economy has sunk.

Mon, 05/27/2013 - 19:37 | 3602190 Poor Grogman
Poor Grogman's picture

Where are all the Freegold retards?

The Indian government bans gold loans just like the FOFOANs want.

So now the indians effectively have Freegold,

Let the interest flow to the money changers continue!!!!!!

While the lucky Indians save in gold.

yippee...

Mon, 05/27/2013 - 20:18 | 3602286 rxmitch
rxmitch's picture

diversify

1oz au monthly

1oz pt monthly

forget iras

become your own central bank

Mon, 05/27/2013 - 21:33 | 3602443 nathan1234
nathan1234's picture

The stupid brainless assholes. the Reserve Bank of India.

What it means is that the business will be diverted much more to the private financiers and at much higher rates of business.

Gold in India to both the rural and urban population is the first form of saving. More than 60% of Indians do not have bank accounts anyway.

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