I've been tracking India's plans to revolutionize its gold markets for several months now. And last week we got the final stroke in this saga.
That came when the Indian government approved the so-called "gold monetization" scheme. One of the big measures aimed at reducing gold import demand in the country.
India's national cabinet passed a final version of the monetization plan last Tuesday. With the draft document creating a system where Indians holding private gold will be able to deposit it at banks -- and then earn interest on their bullion holdings. Related: Decline In U.S. Oil Production Accelerates
The government plans to then make the deposited gold available to buyers across India. With the aim of reducing gold imports from outside the country -- which currently run at nearly 1,000 tonnes yearly.
India's cabinet also approved a "gold bond" program. Where citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold itself. Related: Goldman Sachs: Oil Could Sink As Low As $20
On the surface, these plans look like they could have a marked effect on the global gold market. Estimates are that private citizens across India hold tens or even hundreds of millions of ounces of gold -- which could become available to the banking system if the monetization program is well received.
The key will be whether the program does indeed get strong uptake from the public. Versions of the scheme have been tried in the past, and received little deposited bullion -- mainly because interest rates on deposits were relatively low. Related: Why Saudi Arabia’s Pursuit Of Market Share Is Self-Defeating
The government has said it will address this issue and raise interest rates this time around. But the plan approved by cabinet failed to give any specific guidance on prescribed rates -- instead noting that interest payments would be set by market conditions at the time of the deposit.
The government expects to announce exact dates for implementation of the program soon. Watch for this news, and the success of the new plan once it does become reality.
Here's to interesting times,
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Dave Forest
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