Indian Government Desperately Tries To Discourage Gold Demand

In an attempt to save their local currency and control the current account deficit India is imposing measures to control gold demand and trade. We wrote earlier this week that India’s gold demand in Q1 mounted to 256.5 tonnes. Besides, The World Gold council estimates that Indian gold imports will reach 350-400 tonnes in Q2 2013.

The first measure which was announced earlier this week imposes a ban on bank credit for gold imports the Reserve Bank Of India. This is an excerpt from the central bank’s letter which was sent to gold importers via the local banks.

“All letters of credit to be opened by nominated banks, agencies for import of gold under all categories will be only on 100% cash margin basis. Further, all imports of gold will necessarily have to be on documents against payment basis. Accordingly, gold imports on documents against acceptance basis will not be permitted.”

Today, India announces an increase of the import duty. The duty is increased by a third: from 6% to 8%.

The Indian Times comments: “The move will nearly cripple retail jewellery trade and probably lead to higher smuggling into the country, putting the clock back by nearly two decades when socialistic governments restricted gold imports.”

The Indian government has taken several measures to decrease gold imports in the past two months. Mineweb writes: “Gold is the second most expensive import for the country after crude oil. The government also worries that large amounts of savings locked up in gold curtail liquidity and therefore investment in infrastructure and other drivers of the economy.”

We would add to it that the government is desperately trying to force confidence in their fiat currency. As we have wroten and proven before, we are in the middle of a global currency crisis which results in even more controls by governments. We believe this has the potential to ultimately backfire on a global scale.

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