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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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These New Numbers Show A Major Threat To Gold Is Disappearing

A lot of eyes in the global gold sector on India the last few months. Looking to see what effect radical new plans in the bullion business here might have on demand in the world’s top-consuming nation.

The biggest change going in India’s gold market has been the so-called “gold monetization scheme”. Where the government has been encouraging private citizens to deposit bullion with central banks, in interest-bearing accounts. Related: Analysts See 2016 Oil Price Rise, While Traders Bet On Fall

The idea for the government is to then loan out the gold to jewelers and other end users. Thus reducing India’s overall gold import demand. (For a good prompt on some of the economic problems with this plan, see here from Zero Hedge.)

But logical or not, it appears that India’s gold holders have made up their minds on the gold scheme.

And they’re saying no. Related: Why The Oil Price Crash Is Killing The NHL

That’s judging from reports from India’s Economic Affairs Secretary, Shaktikanta Das. Who said on social media Saturday that the gold monetization scheme has attracted 900 kg of gold to date.

That comes with the scheme having been in effect since November 5 — suggesting that the government is collecting less than 400 kg per month.

That would imply the scheme could attract something on the order of 5 tonnes of gold yearly, at current deposit rates. Equating to just 0.5 percent of India’s estimated gold demand of approximately 1,000 tonnes per year. Related: Oil Markets Are Balancing Faster Than IEA Would Have Us Believe

Such numbers are likely not enough to move the dial on local or international prices. Suggesting this potential threat to the global gold market may pass with little effect.

India’s government is trying to tweak the scheme to make it more attractive and accessible to investors. Watch to see if the deposit numbers depart from the current trend — a big increase will be needed to make a difference.

Here’s to plunking it down

By Dave Forest

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