For anyone interested in gold, it’s no secret that India plays a big role when it comes to global consumer demand for the yellow metal. Indians may have a relatively poor society with little business opportunity, but their demand for gold is insatiable.
There are ancient temples in India that have amassed a lot of gold. Some estimates put the total amount at 3,000 tonnes, which is over $100 billion.
A few years ago, gold was discovered in secret vaults in one temple that was worth an estimated $20 billion.
These temples are often heavily guarded and contain a variation of gold bars, gold coins, and gold jewelry. You could say that they symbolize well the Indians love for gold.
Unfortunately, that is not the end of the story.
Prime Minister Narendra Modi has a plan to put this gold to good use, at least from his perspective. Modi’s proposal would encourage these temples to deposit the gold into banks in exchange for interest payments.
The government would take the gold and melt it down for jewelers to use to meet current demand. According to Modi and his statist supporters, it would help in curing India’s trade deficit.
According to the chairman of the trust for the Siddhivinayak temple, Narendra Murari Rane, they would be willing to participate if they see the policy as beneficial in terms of being safe and earning good interest. I don’t know if he is simply naïve or a shill for statist policies. Sure, just turn over your gold to the government and I’m sure it will be “safe”.
Unsurprisingly, this isn’t going over too well with some people, particularly some who actually donated gold to these temples. These donations are often made as a donation to God and the gold is expected to stay at these temples.
Government Schemes Never End
For anyone without their head in the sand, this is obviously just an attempt by politicians to steal people’s wealth. It is just another avenue for the government to extract wealth from the people.
In this case, India’s so-called trade imbalance is used as a primary reason for this scheme. But there really is no such thing as a trade imbalance. If there were truly an imbalance, then it would be called theft and it wouldn’t be trade. Otherwise, there is always an exchange going on. The exchanges can involve consumer goods, money, gold, or a number of other things, including government debt.
The U.S. often runs a so-called trade deficit, although for very different reasons than India. But so what if India is importing a lot of gold to meet consumer demand? If this is what people want, then why is that so bad?
This isn’t about the government trying to fix a trade deficit. This is about the government trying to obtain more power, more money, and prevent people from owning so much gold.
As Alan Greenspan (ironically enough) pointed out about 50 years ago, statists do not like gold. It serves as a barrier to their ambitions of money printing and deficit spending.
In many ways, I see this as India’s version of Obama’s MyRA plan, which is an IRA for people to purchase government bonds. It is nothing more than a scheme to get people to hand over more money to the government. Whether it’s suckering Americans into buying more U.S. government debt, or suckering Indians into turning over their gold to the government, it is all a scheme.
If there is one thing that the people in India get right in terms of economics, it is their desire to buy and hold gold. Let’s hope that they have enough sense not to turn this over to the government for some small interest payment.