Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Cash Crisis in India Hitting Gold Sales Hard

  by    0   1

The domestic gold market in India is facing an upheaval as traders place an increasing number of bulk, short-term orders on fears Prime Minister Narendra Modi could seriously throttle overseas imports of gold. The traders’ fears stem from Modi’s plan to eliminate so-called black money from India’s monetary system by demonetizing the 500 and 1,000 rupee notes. The bills were previously the country’s largest currency denomination.

Indian rupee

Modi’s hard-line demonetization efforts are meant to root out untaxed funds held in secret by Indian citizens. It’s estimated up to a third of the country’s annual demand (1,000 tons of gold) is paid for with black money. The intent of demonetization was to cut down on corruption by targeting Indians holding “large amounts of undeclared wealth to deposit the money at banks and make their assets official,” according to the L.A. Times.

However, revoking the currency’s sovereignty has had unintended consequences for India’s poor and has led to nation-wide currency shortages. The recalled 500 and 1,000 rupee notes, which are currently worth around $7.50 and $15 respectively, make up approximately 86% of available cash. The shortage has led to long lines at banks, ATMs, and post offices, which are charged with exchanging the worthless notes for new ones.

Modi’s monetary plan also involved a new 2,000 rupee note and a revamped version of the 500 rupee bill. The change is adding to the cash flow problem because the bills are different sizes and banks have to reconfigure the country’s 200,000 ATMs to work properly with the new bills.

Although the prime minister hasn’t directly revealed next steps, many gold traders are looking to stock up reserves in case there’s a crackdown on overseas purchases.The rush to buy gold with such a shortage of cash could “create sharp swings in purchases, affecting world prices,” according to the Times of India.

Many gold traders and jewelry shops are shutting their doors to customers and the bullion merchants association has stopped quoting gold rates all together. Some shops have remained open but are refusing to take the old 1,000 and 500 rupee bills. Still others are taking the defunct notes, but are charging a marked up premium of up to 50% to those looking to offload their black money.

Credit and debit cards are still available, but make up only 10% of transactions for Indian jewelers, according to the Times of India. Tightening gold reserves are coming at a bad time for Indians who are observing their traditional wedding season, which accounts for a majority of the gold purchases for the world’s second largest gold buying nation. Jewelers are expecting the cash crunch to deeply impact sales, which usually peak during November.

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

The Outlook for Gold in 2020 Remains Bullish

Gold had a strong year in 2019 and a World Gold Council report says the outlook for 2020 remains bullish. We expect that many of the global dynamics seeded over the past few years will remain generally supportive for gold in 2020.” Gold charted its best year since 2010 last year. The price increased by […]

READ MORE →

Spending Us Into Oblivion: Federal Budget Deficit Tops $1 Trillion in 2019 Calendar Year

The US federal government ran a budget deficit of over $1 trillion in the 2019 calendar year. It was the first budget deficit over $1 trillion in any calendar year since 2012 — in the midst of the Great Recession. The budget shortfall from January through December totaled $1.02 trillion, according to the latest report issued […]

READ MORE →

Holdings in Gold-Backed ETFs Grew 14% in 2019, Hit All-Time Highs

Net inflows of gold into gold-backed ETFs came in at 400.3 tons in 2019, according to data released by the World Gold Council. ETF gold holdings grew by 14% last year and finished at 2881.2 tons. Overall, global gold-backed assets under management grew by 37% in US dollars due to positive demand and an 18% […]

READ MORE →

Central Banks Continue “Remarkable” Gold-Buying Spree

Central banks continued their remarkable gold-buying spree in November and remain on pace to eclipse 2018’s near-record purchases. According to the latest numbers from the World Gold Council, central banks added 27.9 tons on a net-basis to official gold reserves in November. That brings the yearly total for 2018 with one month left to calculate […]

READ MORE →

A Shocking Numbers of Americans Live Paycheck to Paycheck

We’re told that this is the greatest economy in history. Stock markets are surging. Unemployment is low. And yet despite the good times, a shocking number of Americans live paycheck to paycheck. Several surveys cited by MarketWatch reveal the precarious financial situation many Americans find themselves in. This is less than ideal in an economy […]

READ MORE →

Comments are closed.

Call Now