Here’s an unexpected twist to the ongoing gold market saga in India.
Bullion donations from god.
It sounds fanciful, but the world’s number two gold consumer is looking to donations from religious institutions to lower its bullion import demand. And insiders say the plan might just work.
The scheme revolves around massive gold holdings accumulated by India’s Hindu temples. Which the government now wants to access, according to reports from local press this week.
Reports suggested officials will launch a program in May where temples can loan their gold to the central government. In exchange, the lenders will receive interest payments on the gold holdings they deliver.
The government then plans to melt down the received gold and lend it out again to local users.
The critical point is the effect this plan could have on India’s gold imports. Effectively reducing the need for foreign bullion in meeting local demand. With some estimates suggesting that temples could hold enough gold to cut imports by 25% — or about 200 to 250 tonnes per year.
That would be a substantial loss of demand for the global gold market. And a big negative for prices.
Of course, it still remains to be seen whether the plan will succeed in attracting gold loans — especially given widespread distrust of the banking system in India.
A similar gold loan scheme with temples was actually tried before, in 1999. And failed almost completely — because very few gold holders chose to sign onto the plan.
Sources say the difference this time around will be higher interest rates offered by the government. With suggestions that payments may range as high as 5% — as compared to just 1% previously.
There are still a lot of questions, but this bold plan is a big item to keep an eye on for gold investors. Watch for more details on the scheme coming in May.