In what can only be described as a classic example of “We’re from the government. We’re here to help” in the tradition of “Heck of a job Brownie”, today we’re taking the concept of the government’s monopoly on marketing genius overseas as we head to New Delhi to discover just how exchanging your collapsing paper money for gold money puts your current account at a deficit.
How do you reduce the interest in gold? It’s simple. You make gold more attractive. That’s right. the Chief Economic Advisor of the Finance Ministry in India says “We are worried about gold imports.” Raghuram Rajan continued by saying “The way to curb holding of gold is to create more attractive financial instruments.”
Of course, Mr. Rajan isn’t talking about real gold. He’s talking about paper gold, but will people be able to tell the difference? The entire idea behind selling paper gold (say the SPDR Gold Trust Exchange Traded Fund) by such self-admitting drug money laundering custodian banks such as HSBC (http://www.ice.gov/news/releases/1212/121211newyork.htm) is to present it as being just as good as gold… maybe even better. SPDR Gold Shares promotes itselt as the largest physically backed gold exchange traded fund in the world. Then what is there to worry about? Why don’t Indians just buy the GLD? Isn’t it a “more attractive financial instrument” than gold? It’s paper. It’s safe. It can be wired to your account? It has a cool spider logo… kind of like Spiderman. Are you attracted yet?
According to Wikipedia, GLD has been criticized by Catherine Austin Fitts and Carolyn Betts for its extremely complex structure and possible conflicts of interest with HSBC and JPMorgan Chase, but what does Wikipedia know about the appeal of gold and how to curb it. It’s an encyclopedia. Who takes investment advice from an encyclopedia? Certainly not the Mexican Drug Cartel “family” members.
HSBC critique: http://info.publicintelligence.net/HSGAC-HSBC.pdf
If you have been reading your Dave lately, then you know about the plan that was announced on November 25th for India to dematerialize gold (http://tradewithdave.com/?p=14193). It was similar to that plan announced by the DTCC to dematerialize your soaking wet stock certificates held in the Cede & Co street name at 55 (under)Water Street. (http://tradewithdave.com/?p=13436). The whole thing is very modern in a Star Trek, “beam up my gold Scotty” kind of way. It’s an effort at “more attractiveness” by showing that you can’t beam up physical gold, so you’re better off with an electronic version. Even paper doesn’t beam up real well, plus custodians discovered that paper gets wet when trillions in certificates are stored below ground in a flood prone area. Drats… #Sandy.
In related news, both the Chief Economic Advisor to India and a retired chemistry professor who was given access to the Bank of England’s vault and created the only video that is challenging the success of Psy’s Gangnam Style with nearly 2 million views in just over ten days (http://www.youtube.com/watch?v=CTtf5s2HFkA) are in full harmonization relative to their description of the problem with gold. Whether you’re in India and talking about the golden elephant in the room or you’re in the City of London and struggling to get the professor’s hairstyle within the viewing frame of the video camera, the glaring problem with gold is the same.
“We are worried about gold imports. It is an unproductive instrument,” said Raghuram Rajan.
“Gold is an exciting element, it has interesting chemistry and it’s just sitting here doing nothing”, said Professor Poliakoff.
So there you have it. Indians may be importing more gold and exporting more rupees than their government sees fit for them, but the last laugh will be on the population itself. Gold is lazy. It just sits there being unproductive.
Here’s a chart to show just how lazy gold has been the past ten years. You can see why it’s “just sitting there.” Whew, I get tired just looking at it.
If you are keeping up with Dave’s QEII cascade which was posted originally on December 14th, it’s already time for an update. Please add the following Indian aspects to the cascade.
November 19th – In an effort to dissaude speculation, Reserve Bank of India banned Indian commercial banks from loaning money for gold speculation.
November 21 – Newspapers report that Indian government is preparing to issue Gold Bonds. These would be pieces of paper that represent gold, not pieces of gold that represent paper – also not to be confused with athelete’s foot powder.
November 25th – Reserve Bank of India’s Subir Gokran said there is a need to dematerialize gold like any other financial product to reduce its physical imports. Gokran’s described his plan as finding “ways to replicate the financial characteristics of gold without necessarily causing physical importing.” (again see Star Trek Transporter for dematerialization explanation: http://en.wikipedia.org/wiki/Transporter_%28Star_Trek%29)
In a strangely similar strategery as The War on Drugs (see HSBC memo from Carl Levin above), a former Reserve Bank of India governor was overheard in reference to the governments attempt to ban gold speculators, “If you can, try to stop it.” He continued by explaining that “If Mercedes-Benz and aftershave lotion can be imported, why not gold? It is both an investment and consumption good.” Having never viewed gold in the light of a consumable or replenishable such as Aqua~Velva or Old Spice, Dave is going to investigate what happens to gold after it is consumed and will address the issue in future reports. Rather than a fast and furious attempt to stop gold smuggling like drug smuggling, maybe they should just change the laws like they did in Colorado and Washington State and allow people to use the gold up… legally. That’s one way to get rid of the problem. Send it up in smoke.