Update: How India’s New Gold Schemes Are Hitting The Market

India’s recent gold monetization scheme is one of the biggest events for the global gold market in years. And we’re now three weeks into the program — and getting an idea of the effects it might have for gold demand and prices.

News last week suggests that the monetization program itself — where citizens deposit gold at banks to earn interest — has seen a bumpy launch. 

According to local press, the amount of gold deposited so far has been a meager 400 grams (just under 13 ounces). Suggesting that gold holders are not rushing to give up their bullion. 

News this week however, attributed much of that underperformance to “procedural glitches” with the gold scheme. 

That’s because the rules currently state that deposits must be made at “collection and purity testing centres”, which take up the gold on behalf of banks. However, reports suggest that most of these centers are not equipped to handle large amounts of gold coming in — which had led to problems for depositors.

The government announced this week that it will now do away with the collection centers. A move aimed at streamlining the process, and increasing the number of deposits. 

And the program could get a big boost from one largest holders of the gold in the country. The Lord Sri Venkateswara Temple, which holds a massive trove of bullion — and is considering becoming the “single largest depositor of gold” under the monetization scheme, according to reports this week.

The Temple reportedly has 5.5 tonnes of gold already allocated to deposits. Suggesting this could be a major source of supply to boost the program.

Another part of India’s new gold program seems to be getting more traction: Sovereign Gold Bonds. With the government saying this week it’s had to postpone the issuance of these bonds by four days, due to a “large number of applications”.

The gold bonds also have potential to reduce gold demand — because they allow investors to buy a paper equivalent of bullion, rather than physical supply. 

Watch for stats the next several weeks on how many of these bonds get sold — and for a final decision from big players like the Sri Venkateswara Temple, which could make or break the gold monetization program.

Here’s to golden times,

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Dave Forest

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