Is This The Start Of India's Gold Confiscation

Tyler Durden's picture

On April 5, 1933, FDR signed Executive order 6102 which made illegal "the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States" in the process criminalizing the possession of monetary gold by any individual or corporation.

This was de facto gold confiscation; De jure it wasn't, because as compensation for the relinquished gold, Americans would receive 20.67 in freshly printed US dollars for every troy ounce. Anybody who objected faced a fine of $10,000 (just under $200,000 in inflation-adjusted dollars) and up to 10 years in prison.

Once the government was confident it has confiscated enough gold, it turned around and raised the official price of a gold ounce to $35 (about $600 in today's dollars) devaluing the US Dollar by 40% overnight at a time when currencies were still backed by hard assets.

Fast forward 82 years to a time when the barbarous relic continues to be seen as the safest store of value among India's vast population (roughly 20% of the world's total), not to mention the main source of financial headaches for local authorities, one of the biggest importers of gold due to its "traditional" values and where relentless Indian demand for offshore purchases of the shiny yellow metal so plagues the government's current account and capital flow strategy, that the government may be preparing to pull a page right out of the FDR playbook.

Yesterday, Prime Minister Narendra Modi’s cabinet implemented the selling of "gold-backed bonds" when it approved the gold monetization plan and sale of sovereign bonds proposed several months ago by the Reserve Bank of India, the government said in a statement. The plans were first announced by Finance Minister Arun Jaitley in February as measures to woo Indians away from physical gold. As Jaitley explained yesterday, the deposited gold would be auctioned, used to replenish the Reserve Bank of India's reserves or be lent to jewelers. Subsequently, gold "depositors" can redeem in gold or cash depending on the tenure. Said otherwise, an attempt to "fractionally-reserve" gold, which would then be used a source of gold rehypothecation in the country that despite all the government's efforts, remains starved for physical gold.

What does the proposal entail?

As Bloomberg summarizes, an estimated 20,000 metric tons or more of bullion - more than double holdings in the U.S. - is stashed in India’s homes and temples, according to the government. It is this gold that India is scrambling to move from private hands to the public ledger.

As covered here extensively in the past, India is desperately looking for a long-term solution to curb gold imports after the current-account deficit widened to a record $190 billion in 2013 and the rupee slumped to an all-time low.

As the chart below shows, after declining to a 5 year low in 2014 following the implementation of numerous gold capital controls such as hiking the duty on imports to a record high 10%, which however also led to a record surge in gold smuggling, gold imports soared in 2015, and this year may be the highest in gold imports on record, surpassing 1000 tons.

Which is why a closer look at what the gold monetization scheme reveals Executive Order 6102 overtones: the plan will allow Indians to deposit their jewelry or bars with banks and earn interest, while the banks will be free to sell the gold to jewelers, thereby boosting supply. The deposits can be for a period of one year to 15 years with the interest on short-term commitments to be decided by the banks and those on long-term deposits by the government in consultation with the central bank.

The sovereign gold bonds are aimed at people buying the precious metal as an investment. The securities may help shift a part of the estimated 300 metric tons a year investment demand, the government said in a separate statement. The bonds will be issued in denominations of 5 grams, 10 grams, 50 grams and 100 grams for a term of five years to seven years with a rate of interest to be calculated on the value of the metal at the time of investment, it said.

But before foreigners rush to Bombay with hopes of monetizing those bars of physical in exchange for cash flow streams, the bond purchases will be limite only to local citizens and capped a just 500 grams per person annually:

In other words, very much like FDR's proposal, what India is hoping to do is entice the population to hand over its gold only not in exchange for a cash payment "here and now", but to use it as a monetary, interest-bearing asset, oh feel free to mock anyone who repeats the old adage that "gold pays no dividends" - in India it now pays interest.

Will the plan work? 

Some are skeptical. "It is unclear if a gold monetisation plan will be able to curb imports. A similar plan launched in 1999 had failed partly due to low interest rates, and bankers fear a repeat unless the government funds lenders to implement the programme. Jaitley declined to give details on how the government will make it attractive for banks."

To be sure, the government can urge banks to ramp up the "deposit" interest making gold that much more attractive a monetary "investment" than mere cash, in effect confirming that this is nothing but a gold confiscation ploy (or asset swap as the purists may claim) not to mention an admission that there is something disturbingly wrong with the Indian financial system and/or economy.

But the one thing to watch for is a shift in the posture of the Indian government: for now participation in the gold monetization scheme is voluntary, and largely geared to the general public with the 500 gram/year limit. But if and when the Modi cabinet starts "urging" the population, and certainly when threats of fines and/or prison time emerge, that is when we will finally have confirmation that the second coming of Executive Order 6102 has arrived. By then, however, the ratio of paper claims to deliverable gold at the Comex should be in the 5 or more figures so at least the price of "pet rocks" should be laughable at best.

* * *

More here: "In India, Gold Is Not Only Money But Now Pays Interest."

The full "scheme" as proposed is laid out below.

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ParkAveFlasher's picture

Gold Shirt Man laughs at these pathetic attempts to confiscate gold.

Syrin's picture

I'm sorry officer.   I would love to give you all my gold, but I had this boating accident.....

McCormick No. 9's picture

Of course they will confiscate gold in the US. Duh. And for those of you who will only use your gold to buy cash dollars and/or food (if , no- WHEN- they outlaw cash), I will buy your gold for the follwing price- two loaves of wonder bread, three cans of refried beans, or a 15 lb bag of dog food.

(hey, it s t r e t c h e s your food dollar AND makes its own gravy!)

Gold is for kings (elites), not you.

City_Of_Champyinz's picture

My gold will remain in the hole I buried it in thank you very much, Fuck the corrupt government.  I will use the silver to buy things i need at that point...

bania's picture

Looks like this Indian guy is about to lose his shirt!

MalteseFalcon's picture

I'm not a gold bug, but it is easy to see the authorities are full of shit on the topic.

"the deposited gold would be auctioned, used to replenish the Reserve Bank of India's reserves or be lent to jewelers."

If your gold gets sold or "lent" to a 3rd party, how is it retrieved?

Utter bullshit.

ebworthen's picture

This thought occurred to me when the Comex went nuts the other day and there were over 200 people to every ounce of deliverable.

You know, they could do it - outlaw precious metals - because it is a psychological war, not a physical one.  They already have the younger generations trained to use plastic cards and their phones, no watches, no cash, even audible music through speakers is dying not to mention cooking yourself a meal.

If you are intentionally creating a dependent underclass of 95% of the population that is completely dependent upon the system (the Kleptoligarchy) you must get rid of tangible assets and life skills.

Another 10 years and anyone using cash, wearing a watch, talking about Gold and Silver, or cooking their own food will be marginalized as one of those "crazy old people".

TongueStun's picture
TongueStun (not verified) Pool Shark Sep 10, 2015 4:26 PM

Shoot any Modiphucker who says such things....

OpenThePodBayDoorHAL's picture

Ask any Indian and they will tell you the gold in the basement of the temple does not belong to the temple, it belongs to the gods of the temple. It's not about welath, or even culture, it's about religion. Good luck changing people's views on that

Billy the Poet's picture

Yeah, and they're all onto the Son of Sikander scam by now.

Countrybunkererd's picture

The "Stupidity Shockwave" is coming fast and hard.  Where I am, as my name suggests, I personally know a dozen people that don't even have a cell phone.  I have a small flip phone and nothing more and have been called crazy for a while now.  I don't need it, i don't care for what it does to people by making them anti-social and calling it social media.  What will they do next?  An i-penis? i-vagina?  They are stupid products feeding off of the mass of unhappy, mal-adjusted, empty souls that can't stop and think about life because it isn't what mommy and daddy promised them.  They find they are exactly average, not a prince or princess, just exactly average.  What a waste of life, sad fools.  Tech has it's needs, but this is the classic bait and switch and the foolish masses are buying into a system that is completely and utterly making them slaves.  The i-crap craze is a religion for all ages and sexes, an empty one at that.  Everyone wanted a "cool" swatch watch in the 80's... or the beenie babies... you want it so i want it too... see how cool we are while someone gets rich, then blame them for being rich by using the stupidity of culture.

Ahhhhhhhhhhhhhhhhhhh...Screw it.  Society has already been flushed, is it a low flow toilet or an old but high speed type of toilet?

 

astroloungers's picture

In 10 years I will be one of those crazy old people.....I'm not sure if I can fix this shit between now and then.

daveO's picture

They tried import fines to stop it from going into India and never leaving. That just created smuggling. Now, they are going to act as a pawn shop to retrieve the gold. Someone's always desperate for a short term loan. I'm sure some of it will get 'smuggled' back out of the country to feed demand and suppress prices. 

Uncle Sugar's picture

What I can't get is why they still quote it on CNBS and Bloomberg.  There is obvious disdain from the money honey's who talk to the quotes each morning.  If it's so irrelevant, why cover it?  Maybe it's  not irrelevant??

 

Kaervek's picture

They want to create their very own Fort Knox. And I mean who wouldn't? It's immensely profitable.

1. Get all your people's gold

2. Rehypothecate it into oblivion

3. Pay people's interest and anyone trying to redeem their investment with cash (or put them in prison)

[Yes this is basically a ponzi enforced by law]

The worst thing that could happen would be riots, but now you have the gold/cash to keep the police paid and happy.

Groundhog Day's picture

The majority of Indians in India might not be educated to understand the inner workings of the ponzi i mean banking sector, however they have this thing about gold engraved into their skulls..."don't part with your gold" "never trust your government".  The older cultures have seen and remember the destruction of paper money more then the "civilized" west.  This plan might just backfire and make it even worse on theri trade numbers.  Additionally,  they have no way or means to enforce a ban on gold or to make holding it illegal.  The entire country would revolt in an instance

Bullionaire's picture

Seriously, Scotty.  I call "clickbait" on this one. The Tylers should be ashamed.

First, FDR's gold "confiscation" occurred during a gold standard. At this late date, gold has been so agressively demonitized by banksters that they couldn't possibly justify such a move; "Um, yes I know we've said that gold was just a pet rock, but you still have to turn it over to us because, um, because we say so?" Fuggoff.

Second, and I've corrected The Tylers on this multiple times, the 1933 devaluation of the USD vs. gold was SIXTY-NINE PERCENT, NOT FORTY PERCENT.  DO THE MATH, DAMMIT.

And third, .gov can confiscate anything they want from you at any time - see this article from TEN F'N YEARS AGO, straight from the horse's mouth (no not John "Kerry" Kohn):

http://gata.org/node/5606

Can we all get with the program, FFS?

TheReplacement's picture

I'm going to round 20.67 to 20 for simplicity.  Most people SHOULD be able to work this out in their heads.  Well, most people over 40.  Okay, over 40 and not zombified by bread and circuses.  Basically, anyone with an IQ over retard which leaves, like, at least a few dozen Americans.

-------

Start with $20.

Add 75% of 20 which is $15.

$20 plus 75%($15) is $35.

-------

You get the ballpark idea.  Obviously Billionaire is onto something.  Now to the harder math.  There be decimals and shit here.

Start with 20.67.

Add 69.xxxx% of 20.67 which is 14.33

20.67 plus 69% (14.33) is 35

 

 

 

TheReplacement's picture

Oh yeah, thanks $B.  This is one of those things someone can read over and not bother to do the math, just ingest and go.  I, for one, was not paying attention.

Say, 69% sounds a lot worse than 40%.  Let's use 40.

Divine Wind's picture

 

 

 

Does Mr. Patel have neck and back problems?

Uber Vandal's picture

Why not use a hoard of copper cents and nickels as Kyle Bass did.

They are still one cent and five cents each, no premium either, yet.

Very affordable, and one can still find them walking down the street on occassion.

City_Of_Champyinz's picture

I am no expert on recyling nickels, but if the shit hits the fan something tells me they will not be worth much as there will not be much industrial use for the metals in them at that point...

NotApplicable's picture

Like "junk" silver, they will trade as an alternative currency in a SHTF environment. Of course, barter will still be the premier method while price discovery of alternative currencies seek an equilibrium price.

HungryPorkChop's picture

If you go back to recent history, when worldwide gold supplies were tight the Indian government had high import taxes on the metal to discourage buyers.  Now we're seeing an even bigger scheme being cooked up.  This means one thing, gold supply is very tight again and probably even worse than before.  So this time they're not trying to tax the metal but instead bribe the population to give up their gold.  Remember they were also trying to get the gold from all of India's temples a couple years ago which didn't work out so well for them. 

Let the fireworks begin.  I have a bag of popcorn ready.

KnuckleDragger-X's picture

You want my gold come take and as for your silly dog food, you eat it because I have much better things....

Theosebes Goodfellow's picture

~"Of course they will confiscate gold in the US. Duh."~

I would love to see Obama exec order that one. If you think that some eastern states had non-compliance on a recent weapons ban, just think of the non-compliance this would have. Molon labe, Uncle Sam.

robertsgt40's picture

"20,000 tons, more than double US  reserves"? LMAO I think I have more than the US  in my teeth.

Jackagain's picture

I wonder how long he'd last wearing that get-up in Harlem....

ParkAveFlasher's picture

Last? Bitchez would be taking bullets for him.

xrxs's picture

Gold shirt man = baller.

 

I know where the Indian government can find that physical they're looking for -- Comex. Do it!

847328_3527's picture

The Indians and Pakis I know have kilos of gold and also lots of cash stashed away. Much of it is passed down from generation to generation and is handed down at weddings along with rubies, etc. I have been to some Paki weddings where the gems and 24k gold in the room around people's necks is more then in the fed reserve I bet. The father of the bride said it's passed down from parents to [usually] the first son to get married. It's silly to think any of them would hand any of it over to any gubmint.

And I must say, that 24k looks magnificent against their brownish skin!

RaceToTheBottom's picture

Cleanest Gold shirt in the hamper.

Theosebes Goodfellow's picture

"And with SOLID gold, that pesky static cling is a thing of the past!"

Fahque Imuhnutjahb's picture

 

 

That guy is Finance Minister Arun Jaitley.  That is an advertisement to reasure Indian plebes that their gov.'s got their back,

and their gold, and their shirt, and soon to get their goat.

RafterManFMJ's picture

A fool and his gold are something something.

StychoKiller's picture

If most people in India own some Au, then the Govt. is gonna have to arrest around a Billion people to enforce such Law(s) -- good luck with that! :>D

hotrod's picture

Seems easier to make Gold a currency and not an IMPORT.

jefferson32's picture

Good article, thank you. The bar was high since it was o/t.

 

Urban Redneck's picture

A strangely paranoid rant from someone who is usually more level headed...

Fred C Dobbs's picture

That is my thinking too.  It seems to me bringing in underpriced gold and silver into your country would be a blessing.  But Dobbsie view of gold is not like other people especially central bankers.

Xibalba's picture

Isn't this the FEDs template? 

Kaiser Sousa's picture

if Indian citizens r stupid enough to forfeit their REALMONEY to their banker controlled government who have been trying to steal it/prevent them from accumulating it since the beginning of the "greatest depression" that began in 07'....then fuck them just like fuck the Greeks....

DEATH TO THE MONEYCHANGERS........

agent default's picture

The thing is Indians are not, and Asians in general are not.  Asian civilizations are a lot older that the West.  They have a long historic experience with big government and centralization.

silverer's picture

Yeah.  All the ZH troll posters that keep laughing at gold.  Well, here you go.  Another example of why the pet rock is more than a pet rock.  Again.