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India's central bank cites CPM Group about paper gold's magical properties

Section: Daily Dispatches

5:30p ET Wednesday, January 2, 2013

Dear Friend of GATA and Gold:

Calling attention today to a new report issued by a commission appointed by the Reserve Bank of India to study ways of tempering gold demand in India, Zero Hedge's pseudonymous Tyler Durden summarizes:

"The real message here is between the lines: Just as the U.S. government's veiled threat to curb gun sales and/or to adjust the Second Amendment altogether resulted in precisely the opposite reaction to that intended -- that is, a record surge in purchases of all gun-related products -- so India's ever-more-aggressive attempts to curb gold as a monetary equivalent will simply force the population to hoard more gold, result in greater gold imports, using both legal and less-than-legal means, but most importantly lead to a surge in the gold black market as the government's more explicit intervention in the definition of what is and isn't money forces more Indians to seek the safety of the yellow metal."

... Dispatch continues below ...


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Zero Hedge's excerpting of and commentary on the RBI report is here:

The RBI report is actually pretty realistic. While it encourages the usual paper gold schemes to enable gold to be thought to be in two or more places at once, it also recogizes that the main forces behind India's gold demand are the unreliability of the Indian government's own currency and the age-old inverse relationship between the price of gold and real interest rates, the relationship central banks long have tried to break with their interventions in the gold market.

"It is necessary to introduce savings schemes and instruments that can provide real returns," the RBI report says. "The dominant reason why a person may like to hold his savings in gold is to secure a hedge against inflation. Therefore, offering a real rate of return considering the high inflation rate prevailing, as an incentive on a financial instrument, would better address the issue of excessive clamor for gold imports. Therefore, products analogous to inflation-indexed bonds may be considered as alternatives."

GATA's researcher R.M. notes a telling detail on Page 58 of the RBI report -- its reliance on Jeff Christian's CPM Group Gold Yearbook 2011 for important data. "Interestingly in the financial markets," the RBI report says, footnoting CPM Group, "the traded amount of 'paper linked to gold' exceeds by far the actual supply of physical gold: The volume on the London Bullion Market Association (LBMA) OTC market and the major futures and options exchanges was over 92 times that of the underlying physical market."

That is, the LBMA has discovered mechanisms for making gold seem to be not just in two but 92 places at once.

Actually, as GATA's Adrian Douglas has noted, Christian advertised the magical properties of LBMA gold in his crucial testimony at the March 25, 2010, hearing of the U.S. Commodity Futures Trading Commission, where he remarked that the leverage in gold trading in London was even better than 92 to 1 -- around 100 to 1:

Will the Indian government resolve to try LBMA-style magic on the Indian people? Will Indians fall for it as most Westerners have?

GATA will continue to do what it can to discourage the spread of such gullibility.

The RBI report is posted at GATA's Internet site here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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