RBI to swap India’s gold reserve.

Few weeks back we read news that RBI has decided to swap India’s gold for gold in London with bank of England. RBI says that it has some(we don’t know how much) pre-1947 era gold that is supposedly “impure”. So, they will sell that in Indian market where there is a great demand for gold. This also helps our current account deficit position since gold is imported into India. Then, RBI with it’s dollar reserves will buy gold abroad and store it in London with bank of England.  So this new gold will not be in India and we will not get our hands on it.

Does anyone really believe that there is some pre-1947 era gold with RBI that is “impure”? How is it that nobody found out that these are impure until now? This basically means that RBI will sell physical gold and get paper contracts to ownership of gold in London.

This doesn’t sound like a good idea to me not to mention the hard to believe the “impure” gold story. If we have a war with someone in future and the West including UK oppose us, do you think Bank of England will let us use our gold?

We already saw that Germany’s Bundesbank wanted 300 tons of it’s gold bank of New York Fed and they said it will take 7 years. They only got 5 tons or so in 1 year. At that rate it may take 60 years. Does anyone really believe that these central banks in New York and London really are good custodians of our gold?  It is probably realistic to believe that they have sold others gold for which they are custodian. But somehow, RBI and Raghuram Rajan still believe it is better to sell our physical gold and get some paper contracts from London.

We would expect Govt. of India to do something about this but knowing politicians as they are, it is likely that they simply don’t care.

Could it be that other central bankers and BIS(Bank of International Settlements) told Rajan to sell gold to satisfy domestic demand than let imports happen from tight world market? I don’t know.

Is it possible that in a time of severe financial crisis, Govt. will make it illegal for Indian citizens to hold 24ct gold coins/bars and confiscate them or force them to sell in bank for cash? We had a gold control act from 1960s until 1998 I think. So such a possibility is real. In such a scenario, we will lose our financial freedom to an irresponsible Govt. and RBI and will have no say in it. Do most Indians care about this? No. They have better things to do, like Cricket, Saas Bahu serials, World Cup Football, etc etc.

FM Mr. Jaitley says Gold duty to stay.

It seems our finance minister Arun Jaitlet has finally said the inevitable that the duty on Gold that govt. imposes during import is likely to stay. It’s reported here. Current duty is 10% each on gold and silver. After he failed to reduce it during budget or even mention it, I kind of guessed that he may not remove it anytime in near future. Then came the news that RBI is planning to sell some of India’s gold from Nagpur vault claiming that it is “impure” and that London has better gold. RBI says it will buy the “purer” gold there and store it not in India but with Bank of England in London. I don’t know why. I can only imagine what Mahatma Gandhi will say about trusting the British bank with our gold.



Anyway, if you are waiting for the gold duty to fall so you could buy, it isn’t falling in near future, so go ahead and buy now before Rupee falls more or Gold rises more in dollar terms.



India is a trade deficit country that buys from world more than it sells. Since India doesn’t produce gold, it is imported from outside just like Petroleum. This is unsustainable without Rupee falling steadily over time compared to currencies of trade surplus countries as well as dollar. If PM Modi’s plans of making India a manufacturing hub materializes, then that may help to a large extent. But these are long term plans and we don’t know when and how this will happen and may take years. In the mean time rupee will continue to bleed through your pocket, savings accounts etc.



For now though if you want to save your hard earned capital/savings that you want to store and not deploy in risky ventures like stocks/bonds or bank deposits, then gold will do the trick. Remember, gold is not an investment, it is money. It doesn’t give you an interest income but it will retain your purchasing power over long periods of time.