Gold Markets Are Not Efficient, Don't Reflect Fundamentals and Understate Gold's Market Value - Part V

By: Julian D. W. Phillips | Thu, Oct 24, 2013
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Special Report

Indian Imports & Temple Gold

We feel it important to raise this topic once more in this series because Societe Generale, the French bank has stated that if the Indian government does not handle this matter well there could be a run on the Indian Rupee.

Why? There's no doubt that if the Indian gov't could harness locally owned gold (total around 25,000 tonnes). The currency would then be the best backed currency in the world and shouldn't suffer declines if its gold were used as collateral for its foreign currency needs. The trouble is the Indian people would be furious and the gov't would most likely lose the next election (because of the feelings the Indian people have towards gold).

So, with elections due next year, they're currently exploring ways to achieve this without creating uproar. Hence temple gold, where there are around 2,000 tonnes of gold held by them overall. Much of this is already stored in banks in the country, so technically represent unsecured loans to the banks. Again technically, as in the world of unallocated gold in the developed world, the banks/government can already access it (provided they can return it).

So the warning by Societe Generale is quite right. On the one hand, such moves could create uproar and on the other, the signal would go to the rest of the world that India was in deep financial trouble and could not reduce its Current Account Deficit paving the way for a major debt to reserves ration problem.

We think this is coming anyway.

Last month's imported gold to India was 7 tonnes and the month before 3.5 tonnes, when these figures should be close to 100 tonnes and 70 tonnes respectively. The result is that the premium on an ounce of gold has jumped in a volatile manner from as low as 5% to current levels of around 140%. We believe that smuggled gold into India is rising fast and accounts for the overall volatility of these premiums. We expect a far greater figure than 250 tonnes to be smuggled in.

This raises several issues for gold and India's global monetary situation:

Summary of India's Situation on the Gold Price:

And in so doing, India will lead the way into what we see as a new monetary order with gold taking a pivotal position in that reformed system!

In the final part of this series we will look at the consequences that will inevitably come with management, manipulation and speculation and how China fits into this picture and discuss the demand and supply picture now developing that will change the gold price dramatically!


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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.

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