India's Gold Stash Dwarfs Fort Knox Hoard and Modi Wants It
New Delhi-India (Nov 5) There's about 20,000 metric tons of gold stashed away in India’s temples and households -- more than four times the amount that’s held in Fort Knox in Kentucky -- and Narendra Modi wants to get his hands on it.
India’s prime minister on Thursday unveiled three state-backed plans to try to tap the stockpiles of the precious metal to trim physical demand and reduce imports by providing people with alternative avenues for investment. At an event in New Delhi, Modi announced the formal start of a gold-deposit plan, a sovereign-bond program linked to the metal’s price and introduction of locally minted coins, some bearing the face of Mahatma Gandhi.
India vies with China as the world’s largest gold consumer, and Modi’s administration wants to draw more of the holdings into the financial system to trim purchases from overseas and boost the country’s economic resilience. Bullion will be a help to India’s growth only when it enters the banking system, and large imports should be discouraged, Finance Minister Arun Jaitley said at the event in the capital, which comes a week before nationwide demand peaks.
“The expectations from the schemes in the short term must be tempered as it will take time to build the infrastructure and products and for customer acceptance to grow,” said P.R. Somasundaram, managing director at the World Gold Council in India. “We should see this announcement and launch as a strong indication of an intention to put gold at the heart of the financial system and make it work for the Indian economy.”
The estimate for nationwide holdings of about 20,000 tons came from Modi at the event as he described the stockpiles as idle. That compares with holdings of 147.3 million ounces (4,582 metric tons) squirreled away in the U.S. Bullion Depository in Kentucky, according to data on the U.S. Mint’s website.
Under the gold-deposit plan, investors can deposit a minimum of 30 grams with banks to earn interest, and at maturity either redeem the gold or cash, according to a government statement in June. Banks holding the bullion will be free to sell or lend the gold to jewelers, thereby boosting supply. The planned sovereign-bond issue will be open to investors from Thursday up to Nov. 20, the Reserve Bank of India said on Nov. 3.
India imports almost all of the bullion that people consume. The country’s current-account deficit ballooned to a record in 2013, pushing the rupee to an all-time low, mainly because of high gold and oil imports. That prompted the government to seek to restrict bullion imports and renewed policy makers’ focus on the holdings in temples and households.
Bullion demand in Indian usually peaks in the final quarter of the year, with gifting during festivals and continues with the start of the wedding season in November. The festival of Dhanteras, which falls on Nov. 9, is the biggest gold-buying day in the year as it is considered to be an auspicious day to purchase bullion.
Spot gold traded at $1,107.90 an ounce on Thursday, 6.5 percent lower this year.