Monday, December 3, 2012

RBI's War on Gold

Since last year or so the Reserve Bank of India, in the militaristic language of the US government, has declared a war on Gold. For example, take a look at the list of announcements by various RBI officials re their strategy of halting the vast imports of Gold in India.
  1. On 19th November, RBI banned the Indian commercial banks for loaning money to people for buying Gold. The RBI notification said, "...it is advised that no advances should be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold mutual funds."  And this, according to RBI officials, is to dissuade people from indulging in speculative activity.
  2. On November 25th RBI deputy governor Subir Gokran said,"there is a need to "dematerialize" gold like any other financial product to reduce its physical imports." He further gave the reason for his whim of dematerializing Gold,  "It (high gold imports) is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing." And what are these macroeconomic stresses? According to government and RBI officials, "The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $ 21 billion on the back of rising oil and gold imports."
  3. On November 21st, newspapers reported, that the Indian government is planning to issue Gold bonds. The news story reported, " You may soon have options to invest in new financial instruments that are linked to gold, such as a possible gold bond.   With savings rates dropping from 35% about five years ago, the government, trying to boost savings and discourage hoarding of gold in physical form as a speculative activity, is planning to soon come out with attractive paper products including gold bonds, riding on India’s craze for gold."
  4. And finally, on 2nd December two former RBI governors, C. Rangrajan and Y V. Reddy, warned the government, "against taking tough measures to rein in gold imports — a major reason for the persistently high current account deficit (CAD)." Rangrajan warned, that such tough measures will only encourage smuggling of Gold, which has already started to pick-up pace, and Reddy said, “If Mercedes Benz and aftershave lotion can be imported, why not gold? It is both an investment and consumption good. Many people seem to mistake that it is only hedge against inflation. There is a demand for it. It is being imported. If you can, try to stop it.”
As seen above, the major reason cited by RBI and government officials for these increased concerned over rising Gold import is, that it is increasing the current account deficit and putting government under pressure! Or Gold is being used for speculation. And for this phony reason, they not only are trying to reduce the import of physical Gold directly, but are also wanting to divert people from buying physical Gold to buying "paper gold" [sic] in the form of gold bonds e.g., Subir Gokran wants to dematerialize Gold i.e., replace physical Gold with paper Gold.

Now, in past also I have said, that the root cause of rising current account deficit is not peoples' purchases of physical Gold and rising import, but RBI's inflationary policy itself which is fueling these purchases and thus imports. RBI officials are fooling public by blaming them for their own shenanigans. The fundamental question we have to ask here is, why people are buying gold rapidly? There are many reasons for that, and one of the reasons is, the inflationary policy of RBI. When rupee is losing its purchasing power rapidly, people are replacing useless RBI notes, which are depreciating in value everyday, with an age old store of value, Gold. Gold is being used as money by humans since last 5000 years, and Gold again is reasserting its role as a monetary metal. Gold purchases are also part of Indian culture and that is also because Gold is seen as an ultimate insurance for future uncertainties by people. In present time  government and RBI officials are creating lots of future uncertainties against which people are trying to protect themselves by buying Gold (and Silver). Either RBI officials don't know that Gold primarily is not an investment product - it is money - or they are knaves (I strongly think the latter). And speculators are government's favorite scapegoats since centuries. Speculators are not at all bad (see this).

Not only RBI officials are fooling people, they are scamming them into buying useless "paper gold". Paper gold in the form of "gold bonds" or "gold ETFs" is not physical Gold at all, and it won't give people the kind of safety which physical Gold can provide in the time of crisis. The major reason why one should be buying Gold in this crisis time is for personal financial safety, and investing in paper gold defeats this very purpose. By luring or forcing people into buying these paper gold products, RBI officials are committing a big crime. They are very disingenuous.

In this tough economic times, it is advisable for people, that they do not get fooled by this propaganda of RBI and government thugs. They should continue to regularly accumulate physical Gold (and Silver) and stay away from any paper product. When finally the present phony fiat currency world monetary system will crash, Gold (and Silver) will only be the last safety resort.

And above all, more than any investment or financial asset, as Warren Buffet's father Howard Buffet said, human freedom rests on Gold redeemable money! Gold preserves human Liberty and it is one of the ultimate weapons in our fight against the criminal gang of the State. So, continue to purchase physical Gold and safeguard your Liberty.

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