Buy Silver – May Replace Gold Money In India

GoldCore's picture
Buy Silver - May Replace Gold as Preferred Money of India
Silver replacing gold as India's preferred investment option again after 100 years?

by Fergal O'Connor, Senior Lecturer in Finance, University of York

The Indian government has been trying to reduce its citizens’ demand for imported gold through a number of means over the last few years. This is part of a wider crackdown on currency used in the black market, that included the withdrawal and replacement of its two largest-denomination bank notes in early November. The strategy will likely have some unintended consequences if we take our cues from the events of 1910.

India-gold-silver

Growth in Indian gold and silver jewellery demand. Thomson Reuters GFMS Gold 2016 and Silver Survey 2016

Indians’ famous love for gold has created serious and ongoing economic issues for the nation. In 2011, Australian investment bank Macquarie estimated that 78% of India’s household savings were held in gold.

In effect, this means that India has a dual currency system where people choose to save mostly in gold rather than rupees. This is unlike any other major economy and begs the question: how do you wean a population off a precious metal?

Bling and buy sale

Building up savings in gold rather than deposits in a bank creates a permanent drag on India’s growth. This happens because the savings do not increase the available funds for lending within the banking system. One reason it is so difficult to put this gold to work as investment capital is that 79% of it is bought as jewellery, rather than bars or coins.

2017-australian-kangaroo-1oz-silver-bullion-coin-reverse-lAustralian 2017 Silver Bullion Coin (1oz) now in stock

India is the world’s largest consumer of gold jewellery at nearly 700 tonnes in 2015 according to the GFMS Gold Survey 2016. However, it mines less than two tonnes of gold a year. This means India must import gold worth US$25 billion each year, pushing up its current account deficit and pulling down the value of the rupee.

In 2015, prime minister Narendra Modi’s government introduced a Sovereign Gold Bond scheme which allowed gold holders to swap their gold for an interest-bearing bond. At the end of the bond’s life investors would effectively be returned the same amount of gold. This move reduced the minimum amount of gold necessary to participate in such a scheme to two grams. As of November 2016, 14 tonnes of gold had been subscribed to the two gold bond issues, with another five tonnes collected through the older gold monetisation scheme (which has a larger minimum deposit of 30 grams).

However, relative to India’s estimated privately held gold stock of 20,000 tonnes, these deposits represent tiny amounts and it still doesn’t seem like a solution.

Unintended consequences

An alternative would be to permanently reduce gold imports. To that end, in 2013, the government started to increase import taxes on gold imports to 6%; this now stands at 10%. However, falling gold prices during that period meant that there was still a 12% increase in gold imports in 2015 as consumers snapped up what they saw as bargain prices.

And here is where we go back more than 100 years to see how this all worked out last time. You see, India has battled precious metals imports for quite some time. In 1910 the government of India increased the import tariffs on silver from 5% to 11%. A market report in 1912, by Pixley & Abell, a gold wholesaler, pointed to a 28% fall in silver demand in the Indian bazaars in the three years following the increase. They attributed this to not just a fall in demand for silver due to tax increases, but also a substitution of gold for silver in people’s savings as gold became more attractive on a relative basis.

Between 1910 and 1930 net imports of silver in India fell from 98m ounces to 31m, according to British Geological Survey reports. After this time India gradually became the world’s largest gold consumer, a position it finally lost to China in 2015.

And it seems a return to silver as a major investment for consumers in India may be on the cards. Following the recent import tax hikes for gold, 2015 saw Indian silver imports grow to almost 8,000 tonnes, 14% up on the previous 2014 record. At the same time, demand for gold jewellery, which accounts for 75% of all Indian gold demand, is down 30% for the 12 months to the end of September 2016, according to the World Gold Council. This points to a possible shift back to silver as a more prominent investment in India.

Gold makes up the vast majority of Indian jewellery sales. But the graph below shows the rapid growth in silver jewellery demand in India, which is up over 600% in ten years, relative to marginal growth of only 25% in gold jewellery demand.

Of course silver is not the only precious metal investment option available. If investors want a more compact form of wealth, then platinum, worth 56 times more per ounce, might suit. But a swap to silver in India, as was the norm pre-World War I, seems more likely and could have a major effect on prices. For a sense of scale, the Indian gold jewellery market in 2015 was worth US$25 billion, while the total world silver jewellery market was worth only US$3.5 billion.

Conclusion

Even a small substitution from gold to silver would result in a massive increase in the price of silver. A 10% reallocation from gold jewellery investment to silver in India would nearly double world silver jewellery demand. Mines and other sources would not be able to fill the gap immediately; prices would rise, further fuelling demand and creating a new, shiny headache for those trying to marshal India’s unusual economy.

This article was originally published on The Conversation. Read the original article.

Gold and Silver Bullion - News and Commentary

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Gold Prices (LBMA AM)

07 Dec: USD 1,171.25, GBP 929.62 & EUR 1,092.19 per ounce
06 Dec: USD 1,171.15, GBP 918.18 & EUR 1,086.94 per ounce
05 Dec: USD 1,164.90, GBP 915.84 & EUR 1,095.36 per ounce
02 Dec: USD 1,171.65, GBP 929.00 & EUR 1,100.88 per ounce
01 Dec: USD 1,168.75, GBP 930.09 & EUR 1,099.68 per ounce
30 Nov: USD 1,187.40, GBP 952.06 & EUR 1,115.44 per ounce
29 Nov: USD 1,187.30, GBP 952.45 & EUR 1,119.98 per ounce

Silver Prices (LBMA)

07 Dec: USD 16.77, GBP 13.32 & EUR 15.64 per ounce
06 Dec: USD 16.79, GBP 13.17 & EUR 15.63 per ounce
05 Dec: USD 16.62, GBP 13.05 & EUR 15.54 per ounce
02 Dec: USD 16.35, GBP 12.95 & EUR 15.36 per ounce
01 Dec: USD 16.30, GBP 12.91 & EUR 15.35 per ounce
30 Nov: USD 16.67, GBP 13.39 & EUR 15.66 per ounce
29 Nov: USD 16.54, GBP 13.26 & EUR 15.61 per ounce


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Sudden Debt's picture

Prices will only move when industrials who need silver have a supply issue.

And that moves in timespans of 1 year.

Maybe 2017 will make us rich but do we need to sell if it spikes up? Because it would mean that the exchange for money would be an exchange to something that is breaking down.

That's the problem with gold and silver, when it's time to sell it's mostly also the time that monetairy currencies are in big trouble.

Golden Phoenix's picture

If January 2012 you'd invested $1000 in silver you'd now have about $500.

If January 2012 you'd invested $1000 in Bitcoin you'd now have about $154000.

 

Stupid Bitcoin people.

Silver is going to kill it any day now...

Silverhog's picture

First casuality of civil unrest will be the internet. My stack does not need an internet connection. 

Pickleton's picture

Oh look, the moron picked and entirely arbitrary date period showing everybody how superior his silly investment is.

You absolutely convinced all them stupid silver people?

And what price do you put on the very REAL possibility that governments,could outlaw your curiosity?  And when you try to claim 'blockchain cant', just whom do you think you're going to buy things from day to day?  LOL! 

Here's me praying that the clown doesn't try to claim the govt is going to outlaw industrial metals

 

BandGap's picture

Literally sitting here wit 5X100 grams of silver purchased at ~18 an ounce.

See, touch, feel. Yours are cyberbits, floating out in never, neverland.

See who gets yours, see who tries to take mine.

KingdomKum's picture

we few,  we happy few,  we band of silver holders  .  .  .

Bemused Observer's picture

Money and currency are not the same. Money, as a store of wealth, is only the same as the currency if that currency is trusted. Hard to see that as an outcome here. So, they will continue to use PMs as a store of value, and something else as a currency for trading.

Maybe the new rupee notes...and maybe not. A lot of countries peoples use other currencies than their own in the black market. Black markets don't care about 'official values', they create their own. It would be fitting if Modi's scheme led to the rupee being 'revalued' by the black market, or even if the old rupee notes were simply given a value and used. Anything can be used as a currency...you don't need a government to officially value it. It just has to be recognizable, and accepted. Old currency notes are ideal...professionally printed, everyone knows what they look like, etc.

He'd lose total control over his economy. Or rather, his lack of control would become evident. He has basically yanked most of the circulating currency, but has yet to replace it in many many places...if that continues, people will create their own out of necessity.

And how do you collect taxes if you don't have enough currency to keep your economy functioning? If people are lining up all day to get 20-30 dollars worth to cover living expenses, how will they get enough currency to remit their taxes when they are due?

Greenspazm's picture

Silver goes black.

BandGap's picture

That would be AgO, silver oxide.

Take care of it and it will take care of you.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dec 7, 2016 1:41 PM

"...would result in a massive increase in the price..."

OK, how many years/decades do I have to hear this before it comes true?

Lost in translation's picture

I'm hiding silver at the bottom of Lake Erie.  And in my fillings.

fbazzrea's picture

a recent YouTube video with Tom Cloud reveals an apparent new trend attempting to break silver away from its historical "monetary" classification into an "industrial metal" category. not sure if this is an effort to break silver's age-old USD inverse pricing relationship alongside gold to allow a more freely traded market-driven pricing structure, but sooner or later, as global supply continues to diminish under increasing industrial and investor demand, silver will begin trading independent of gold's hammered-down status. it must. because as we all know, we're not selling at these prices. we're buying. (:

F em all but 6's picture

Yea right. Like our esteemed friends running the Comex cant cover any physical supply defecit with paper. Would someone PLEASE dump 10 billion notional soon to control this mess. I feel a need to stack moar.

 

Maestro Maestro's picture

The Indians are subhuman pieces of shit.

The fact that Norendra Modi is still alive and not hanging from the nearest lamp post is proof of that.

Modi is the ENEMY of Hinduism, Indian culture and Indian people.  Modi crashed the price of gold and silver in collusion with the Fed and the ECB, Goldman Sachs, Deutsche Bank and JP Morgan. 

Modi is the enemy of sound economics and sound money, gold and silver.

And Indians are the scum of the earth for licking the asshole of this TRAITOR instead of killing him on the spot for aiding and abetting the enemy and comitting treason.

assistedliving's picture

smacks of desperation to me...and I own a canoe full of the stuff

in brief:  not gonna happen

ali-ali-al-qomfri's picture

'....This is unlike any other major economy and begs the question:

how do you wean a population off a precious metal?'

 

no re-phrase that....

 

why do you want to wean a population off a precious metal?

 

it is apparently clear that the people, place their faith/trust in precious metals

and not in script.

age old solution to age old problem.

 

mary mary's picture

OF COURSE, silver will be used much more in India.  Silver is real money that the government can't welch on.

DC Beastie Boy's picture

Silver already is used as money in many countries ie, govt bullion like US silver eagles and Canadian maples.

Mr Pink's picture

Since when has demand effected the price of silver?

mary mary's picture

Since Indians, Chinese, and South Americans use it every day.

BobEore's picture

When Spanish galleons rode the Pacific currents bound for Philipine shores, the mineral wealth of America flowed into Asia with a gigantic sucking sound.

China, the Spice Islands, India and even latterly Japan were all eager for the purity and uniformity of made in America Libertads, which set the standard for fine coinage in that day. The counter-flow, from Asia to European lands, was necessitated by the paucity of tradeable commodities with which the mercantiist nations of the west could pay for their imports of tea, spice, and china goods.

Leveraging the ratio back to where it could work in favor of those same western powers was a work of time - and much invention. Those Iraqi talmudists with direct pedigree back to the days of the Babylonian Exilarch - the Sassoons and other family enterprises - were happy to help invent the opium for silver trade which brought back sucking sounds to the movement of silver in the opposite direction.

India and China were impoverished by the needs of European powers for a trade balance in silver which would stave off their otherwise collapse in a heap of petty wars between bankrupt states indebted to the Frankfurt and Vienna house of the moneypower.

2016... as India melts down under the command of international finance capital's puppet regime ...https://www.youtube.com/watch?v=VJQ6Mad-DDQ (Crusaders - Street Life)

nuthin new under this ol sun.

AllThatGlitters's picture

From the author's lips to God's ears. Prescient and timely post!

Silver up over 2% this morning:

Live Silver: http://www.pmbull.com/silver-price/

Plus, premiums are quite low at this time. Some of the best deals in a long time still exist:

http://www.pmbull.com/silver-bullion/

How long does it last?  Is today's spike another temporary tease that will ultimately result in another demoralizing beat-down?

I don't care any more. Buy different rounds and coins are fun and I can always hold on to hope that what silver *SHOULD* do eventually *WILL* do. If not, my kids or grandkids will enjoy their crazy benefactor's foresight. 

Jubal Early's picture

Sorry, I beg to differ:

Building up savings in gold rather than deposits in a bank creates a permanent drag on India’s growth. This happens because the savings do not increase the available funds for lending within the banking system.

This is nonsense and is merely mindless repetition of moneylender narrative.  If it were true then how could America have grown so fast in the late 1800's when she was on the gold standard.  If everyone has their wealth in gold, or equivalent, and not fiat, then prices become directly dependent upon savings and affordability.  You cannot fiddle with price levels through interest rates, and you cannot steal productivity improvements from the people when they store their money in PM's.  Modi is a Rothschilds stooge.

jmack's picture

Its funny how government is all for regulation, except for the regulation that gold provides on thier schemes...