Gold News

Indian Imports & Temple Gold

India is the world's heaviest gold importer. Its temples are the heaviest gold owners...
WE FEEL it important to raise the topic of Indian gold imports and India's temple gold because Societe Generale, the French bank, has said that if the Indian government does not handle this matter well there could be a further run on the Indian Rupee, writes Julian Phillips at
Why? There's no doubt that if the Indian government could harness locally-owned gold (total around 25,000 tonnes), the Rupee 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 government 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 investment product offering 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 (CAD) paving the way for a major debt to reserves ratio 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 per ounce 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:
  • We believe the government will adjust policies if they see those adversely affecting votes. This translates into a lowering of the import duty and current requirement to export 20% if imports of gold ahead of the elections.
  • India's CAD has already created a Rupee/debt to reserves crisis which is expected to worsen. Expect an international credit crisis to appear in time. The crisis has been slowed through the temporary use of swaps and gold import restrictions. There is no visible sign of effective action to halt the underlying crisis.
  • With 25,000 tonnes of gold, India only needs to use a small portion of this to give it time to try to resolve the crisis fundamentally. We cannot see how they will resolve India's economic/monetary crisis, but at least gold will give them time to try.
The harnessing of locally-owned gold will happen; it is simply a matter of time and method. This will be a form of confiscation even if government and its agencies continue to recognize the original owner with an eventual promise of returning it.
India could well be among the first countries to take citizen's gold to support their currency, but certainly not the last. It will monetize its gold to some extent and provide a preview of what's to come when the Chinese Yuan becomes a reserve currency.
The absence of direct Indian demand is holding down the US Dollar price of gold at the moment. It is also preventing global demand from overtaking global supplies, thus stopping the gold price from returning to record highs.
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.

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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