India’s Central Bank To Sell Gold On The Market In Exchange For Gold At The Bank Of England

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

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:

The Times of India: “Almost Every Passenger on a Flight from Dubai to Calicut Was Found Carrying 1kg of Gold”

Gold Smuggling Increases 7x in India and Surpasses Illegal Drug Trade

Indian Temples Fight Back Against Government Gold Grabbing Plot

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:


There may be some very concerned bankers in New York and London this weekend.

Full article here.

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agent default's picture

When this thing ends there will be so many hangings, the world will face a rope shortage.

knukles's picture

Well, does that free up any for Germany?

WTF is going on?
Somebody, somewhere is dearly in need of some gold to meet somebody elses' somewheres demand for the stuff they's gotta deliver to, it sound like to me.

This is lunacy.

remain calm's picture

Being the humanatarian that I am, I willing to sell my supply of rope to help relieve the shortage

SWRichmond's picture

Sounds to me like they're selling real gold and exchanging it for paper gold in London.  Sounds to me like London is out.

BaBaBouy's picture

""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.""


Tungsten Surprise...

kliguy38's picture

For such a barbarous relic the London Boyz seem a little desperate to get their hands on it. So one may assume they are in a bit of a spot.

Manthong's picture

ABN AMRO…  DEFAULTED on customers gold held in trust  

Rabobank… DEFAULTED on customers gold held in trust

United States government DEFAULTED on German Gold held in trust


I guess folks just have to be smacked on the head with a smart club to figure it out.

strannick's picture

Central Bankers reverse midas touch. Turning real wealth, into paper promises.

7.62x54r's picture

Yep. Lunacy.

I wonder what kind of pressure was put on the India government to make them give up their gold. The instant it hits that central bank it's gone.

Save_America1st's picture

I wrote this this morning a little after 8am and nobody even responded to it:

From the list above:  

India central bank seeks to swap gold to improve reserves quality

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.

****Are they fucking crazy????????


macholatte's picture


The Reserve Bank of India said...


What we already know for sure: whatever they say is a lie.


The rulers of the state are the only persons who ought to have the privilege of lying, either at home or abroad; they may be allowed to lie for the good of the state.



I have always loved truth so passionately that I have often resorted to lying as a way of introducing it into the minds which were ignorant of its charms.

Giacomo Casanova


If there are two things Penn & Teller stand for, it's the truth & lying, although not necessarily in that order.

Penn Jillette

Greenskeeper_Carl's picture

thats what i was thinking. Lunacy. Selling their real gold for peices of paper, then using that paper, or more likely, digital, money, to buy paper gold certificates from people who can print these certificates and print money literally out of thin air, and never return it, or even hold an honest audit. Real metal for contracts conjured into existance. After seeing what germany is going through trying to get their gold back, they are voluntarily entering into the same arrangment. Insanity.

Alea Iactaest's picture

India's BFF, England, having proven its loyalty to Bangladesh for several centuries, has decided to help leverage India's gold.

Under this gentleman's agreement, England has pinky promised not to fuck India too hard for at least a decade, and has proven it's fealty by bringing the rupee down from its nosebleed heights earlier this year, provided that the Indian government unlocks the people's hoarded gold such that it might be sold to England's other BFF's in Hong Kong and other former British outposts along the Chinese coast.

The BOE is hoping to buy a little breathing room by using the raghead's gold to placate the slant eyes using a little hocus pocus, now-you-see-it-now-you-don't slight of hand by pulling a New York style three card monty with the Queen's voluminous gold hoarde and promising said (non-re-re-rehypothecated and we swear it's there) gold to replace that of the gullible Hindus.

In the end, India is supposed to cough up it's gold in return for some paper and other promises from the English swine and pass it along to the Chinese, reversing the black market flow of the last year, and hopefully (fingers crossed, holding my breath) the NYFed can hold on just a couple more weeks until the Chinese rehypothecation problem finally, FINALLY blows up and the Chinese bubble pops with a massive margin call ending the relentless flow of The Shiny from West to East.

Don't you just love a story with a happy ending?

Tabarnaque's picture

What is strange here is that India is a member of the BRICS. And supposedly the BRICS are about to come out with a parallel monetary/trade/financial system that should involve gold in some form. The BRICS are having an important meeting in Brazil around the middle of this month and Putin is hoping to create a league of countries trading outside of the US dollar. So this announcement of gold swap (physical gold to be swap against paper gold) at this precise time is very strange to say the least. What was the deal offered by the Western Power that Be with India in order to remove their physical gold from them? How will this impact the cohesion within the BRICS?


If India has a little over 500 tines of gold then that represents around 6 to 8 months of their consumption… What a catastrophe for country like India. What a fucking stupid decision made by Modi. Now we know that Modi is either a perfect idiot of a corrupt SoB that just sold himself to the Western Power that Be. In either case this is bad news for India and the BRICS.

Oh regional Indian's picture

Something like what you said. Totally weird.

DeadFred's picture

I've got a lot of rope and it's free to anyone who has a ready lamppost. <and designated banker>

Handful of Dust's picture

Oh yeah…I’ll gladly swap my physical for that piece of paper ‘proving’ my metal is being held in that warehouse … ooops, I mean bank.


7.62x54r's picture

Maybe I can sell them some paper oxygen once they start swinging?

RaceToTheBottom's picture

While the wear and tear would be considerable, I would still recommend leasing it out.  

Watch out for the repothicators

7.62x54r's picture

Once you lease it, it's gone. Period. Bad plan there.

MeelionDollerBogus's picture

Sell receipts to receive rope on demand. After all, the demand is low now but...once leasing more than one has or can get...

:) oh, wait

ZH Snob's picture

trading physical for paper is so insanely counter-sensible, ESPECIALLY NOW, that I am dumbfounded by this news.


Handful of Dust's picture

Had to be alot of mooolaaah under the table to convince those Ineeyans to give away their yellow metal. Dat's my guess.

Alea Iactaest's picture

Leverage is available in many forms. Especially with the NSA on your side.

cynicalskeptic's picture

guillotines - efficient and reusable (quick cycle time too)   and no worry about any ammuntion shortage

MoneyThimbles's picture

Yeah but you can play "Chopsticks" on a row of hanging bankers.


kchrisc's picture

That is one reason why I am such a fan of the guillotine.

They’re "renewable."

"Don't waste a rope or harm a tree, use a guillotine."

Mesquite's picture

Future market in (slightly) used rope..

Guess we need an ETF for rope..?


Have a safe '4th' everyone..

garypaul's picture

See, I fucking told everybody that no real progress is going to come to India despite this Kool-Modi dude being elected. Same old corruption.

dogbreath's picture

I though India raised the import duty on gold because the indians were buying too much and it was devaluing the Rupee.  So now they lift the duties but sell gold which devalues  the rupee.   WTF

NotApplicable's picture

I wonder if they're dumb enough to try tungsten?

knukles's picture

What about securitized curry Slurpees?

Skateboarder's picture

The thing about rehypothecated curry is that it still smells like curry.

quikwit's picture

Not sure that's true. When Indians buy gold from foreign entities, the Rupees leave India, increasing their supply, and thus devaluing them.  When RBI sells the gold, the Rupees go to the RBI, out of circulation in the markets.  Thus, fewer Rupees in circulation, increasing their value.

dogbreath's picture

Good point but they spend the Rupees they recieve and their reserves are reduced so their balance sheet should look worse.  Why wouln't they just smelt their bars into international standard ones.   How hard is it to set up a smelter refinery

Greenskeeper_Carl's picture

this doesnt devalue their currency like importing it does. As the article says, selling their own gold to their own people is better for their current account deficit than importing it from foreign sellers. Not a very good solution, since they are selling what is supposed to belong to ALL indians to those wealthy and lucky enough to be able to buy some. Also, eventually this trick won't work, cuz there won't be any more to sell, then they are back to square one- they have all the same problems, all the currency issues as before, and have a new problem: they won't own any gold, except for their certificates of bullshit they bought in london

BigJim's picture

No problem, they can just ask London to deliver their physical when they need it.

The Indians are a famously patient people; what's a decade or two between friends?

NOTaREALmerican's picture

Huh.   Interesting times.

NoWayJose's picture

Neither India or the UK need the gold - except to meet demand from China. It should be interesting when India goes down with the rest if the globe - will their gold be in the UK? This smells like a Madoff scheme.

LawsofPhysics's picture

Please, for the average person in India they never do anything in the "official" market anyway.


monopoly's picture

Hard to understand all the moving pieces. All the headlines scream about a "self sustaining recovery", "millions of jobs being created", and more cars means more workers means more cars. I am just not buying it. But as always I never short these markets.

So what happens when interest rates rise for real and it is sustained? The Fed is playing chicken with the markets, who breaks first?  No QE, high rates and inflation to the nth degree. Housing will tank since few can put 20% down to buy a house so a slight rise in rates and there goes the mortgage.

And the cycle will continue. Nirvana, I think not. As said here so many times......It is never different.

Good long weekend all to those here at Zero Hedge. And thank you Zero Hedge for all you do for us.

MeelionDollerBogus's picture

Understand? Could one of us, even, ever?
If anything I'd say a neural net connecting updated prices & military movements would almost certainly help predict when some amount of X is going to destination Y.
So long as that also popped out if what happened moved because of war, crime, trade agreements, sanctions, news, I think that would be damn handy.
I'm doubting the human mind truly can comprehend more than simple correlations at a visceral level.

Chuck Knoblauch's picture

I will gladly pay you Tuesday for some gold today.

London the Moocher.

You silly Indians.

You will regret it, as usual.

India is the land of regret.

7.62x54r's picture

Poor India .

( the standard thing an Indian says when some impossibly stupid thing is done by Indians to bugger India again )

Being Free's picture

By holding gold reserves in London, the RBI would gain flexibility to mobilise them if needed to defend the currency.

How can a useless relic of the past defend a currency?