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Written by: Avery B. Goodman

There seems to be some new, seemingly crazy, action by the PM Modi administration in India every day. Last month, for example, they capriciously demonetized the primary forms of cash used commercial transactions in India. It was a stupid thing to do. At the least, it was carried out in a very incompetent manner. It led to chaos, as banks and citizens ran out of cash. Some truckers were even unable to find sufficient cash to pay for fuel and had to abandon deliveries. It was a bit crazy… and economists now expect the demonetization of 86% of India’s money supply to cost several GDP percentage points. Not the smartest way to a run a country. Certainly not a wise method of developing one.

Once someone gets a bad reputation, like that, it is easy for people to believe the worst about him. Whether he deserves it or not, Indian PM Modi has gained the reputation of a madman, or a fool in some western business circles. Naturally, therefore, that has made it easier to plant stories in the business news media hyping up some additional alleged madness. The Indian Finance Ministry, in a show of determination, stated on December 1st that new rules would require that gold be purchased out of income disclosed on prior tax returns, or using exempt income that isn’t taxable (like agricultural income), or using reasonable household savings, or must be “legally inherited from explained sources.”

Contrary to the hype, the supposedly “new” rules actually change nothing. No doubt, the Indian government will become more aggressive in enforcing the law. However, the “new” rules are merely a restatement of old rules that already existed. It has never been legal to defraud the Indian government of taxes. It has never been legal to buy assets, be it gold or anything else, with the proceeds of tax fraud. The newly announced rules are essentially a “press release”, a public relations notice, designed to appeal to less wealthy Indians, who have long been irritated by the ostentatious displays of wealthier neighbors.

In truth, the Indian government has added protection that didn’t exist before. For example, each married woman is protected from being required to show how she managed to get up to 1/2 kilo of gold, worth about $18,000. That’s a huge amount of money in India. Each unmarried woman has the right to not be questioned about up to 1/4 kilo or $9,000 worth of gold, also a huge amount for the country. Each man has the right to keep up to 1/10th kilo or about $3,600 worth. No questions will be asked about such amounts, even if the stuff really was bought with black money. On top of that, an unlimited amount of inherited gold can be kept, free and clear, and tax policemen now have the discretion to “look the other way” at even higher amounts.

Obviously, the Modi government cannot hope to win reelection if it terrorizes the whole Indian population. Even if it wanted to do that, India’s constitutional protection against illegal search and seizure, while not as strong as in the USA, is still substantial. The government does not have an unfettered right to invade people’s homes, businesses and safe deposit boxes simply because it wants to. It faces the same problem as tax authorities in the USA and elsewhere. It must justify such a search and obtain a warrant in all but the most unusual situations.

Indian law can be summarized as follows:

“Legislative intrusion [into the right of privacy in India – AG] must be tested on the touchstone of reasonableness as guaranteed by the Constitution and for that purpose the Court can go into proportionality of the intrusion vis-à-vis the purpose sought to be achieved. (2) So far as administrative or executive action is concerned it has to be reasonable having regard to the facts and circumstances of the case. (3) As to judicial warrants, the Court must have sufficient reason to believe that the search or seizure is warranted and it must keep in mind the extent of search or seizure necessary for protection of the particular State interest. In addition, as stated earlier, common law did recognise rare exceptions for conduct of warrantless searches could be conducted but these had to be in good faith, intended to preserve evidence or intended to prevent sudden anger to person or property.”

Under Indian law, like that of the United States, people are deemed innocent until proven guilty.  The state must prove that black money was used to buy gold before it can be permanently seized. Don’t get me wrong. I have little doubt that Indian tax police will target and be unfair toward certain people, especially ostentacious rich ones who support the opposition. It will also target businesses that are washing demonetized notes, especially those exchanging them for gold. But although the flamboyantly rich, and black market traders, buy what seems like ridiculously large quantities of gold, the vast majority of gold demand comes from tens of millions of average middle class people. The government won’t be bothering them. It also won’t be bothering rural farmers who purchase about a third of the gold imported into India each year. I might add that the income of the farmers is agricultural income and exempt from tax.

Indian tax authorities have always sought warrants to search and seize gold from targeted people. It has been doing that for decades. For example, all the way back in 1996, under the now-opposition Congress Party, it seized 28 kg. worth of gold, allegedly purchased with black money acquired through bribery. The gold bars were in possession of the ostentatious widow of the late Tamil Nadu chief minister J Jayalalithaa at the time of seizure. The case is still pending in the very slow Indian court system.

The idea that the Indian government will terrorize a lot of middle class Indian families, looking for illicit gold, is ridiculous. The announcement is being intentionally used for its shock value and has been deliberately misconstrued. Remember, misinformation is one of the most powerful tools used during major market manipulation events. Misinformation can and is used to panic people, especially over-leveraged gamblers. If they swallow the nonsense, and it appears gamblers in NYC and London are swallowing it right now, the open interest in gold derivatives can be reduced at a minimal cost. That lowers the exposure of casino banksters to higher gold prices.

Once you look at the what is really going on, you see a very different picture from the one that is hyped by naive western speculators who spread the stories, and the manipulators who invent them. In truth, India recently scrapped disruptive requirements that required 20% of all imported gold to be re-exported. According to a highly placed Reuters’ source, they will scrap other gold import limitations next week. It will soon be considerably easier to import gold into India. If not for the demonetization that reduced the money to buy with, demand would immediately rise. As it is, demand will still rise, though it may fall marginally in the short term. Let’s face it, after the recent actions of the Indian government, few law abiding (or non-law-abiding) people are going to be saving rupees.

It is important to take the trouble to carefully calculate the true Chinese gold demand, because once you do that, everything becomes crystal clear. You need to correct for the intentional or unintentional, but nevertheless massive, multiple under-count errors made by GFMS. Once you do the numbers, you’ll find that the end result is a huge gap between worldwide gold demand and supply. It is so large, in fact, that not even the complete elimination of the 800 tons of gold that India might normally be expected to buy this year, would fill it.

In other words, even if India somehow didn’t buy one more ounce of the yellow metal, there would still be an unfilled gap of nearly 1,000 tons at prices below $1,200 per troy ounce. Notably, this demand calculation does not include the possibility of increased demand for gold in Turkey. Its citizens have just been instructed by their President Erdogan to “buy gold and lira”, not foreign currencies. The numbers also exclude next year’s probable increase in Islamic gold demand now that the “Shariah gold standard” has finally been set. No consideration is also given to the probability that instability in Europe, especially due to the upcoming election in France, could massively increase demand in that nation.

Gold prices will begin to climb sharply once the current manipulation event runs its course. An objective look at the real numbers makes it clear that some entity has filled a huge and growing supply gap for at least 4 years running. That not-so-mysterious entity, in all probability, is the US Treasury, which is accomplishing it mostly through arrangements with the Bank of England. There is little question that very large swap liens, taken against gold reserves held at Fort Knox, have been deployed to fill the gap.

Things are changing. First of all, even if the willingness to piss away America’s gold were still there, at the current burn rate, the entire gold reserve will be gone within a maximum of 2-3 years. However, the new Trump government includes several highly placed gold standard supporters, most notably the man who is shaping up to be the single most powerful influence on President-elect Donald J. Trump, Vice President-elect Mike Pence. The speed by which casino bankers lose unfettered access to America’s gold will be based primarily on how fast Trump can reverse the Obama era executive orders.

The quasi-secret order, allowing access to America’s gold reserves, was probably signed on April 11, 2013. As soon as they get to it, it will be reversed. The Obama era, during which our golden treasure was foolishly pissed away in profit-making schemes, concocted by NYC and London banksters, is now over. That is the fact that will dominate pricing in 2017 and beyond, not whether India changes its gold imports by a few 100 tons of gold, more or less. It is impossible to know the exact bottom in a market manipulation. However, now or soon is the time to buy, not sell. For a more detailed explanation of what is happening with respect to the Trump administration and our gold reserves, click here.

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A perfect gift for the holidays!

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  1. You write: “In other words, even if India somehow didn’t buy one more ounce of the yellow metal, there would still be an unfilled gap of nearly 1,000 tons at prices below $1,200 per troy ounce.”
    But the fact GFMS denies the numbers doesn’t mean the gold that enters China isn’t supplied. So there’s no “deficit”. There can be no surplus or deficit in gold. https://www.bullionstar.com/blogs/koos-jansen/the-great-physical-gold-supply-demand-illusion/

    1. You are 100% correct. There is no deficit now. If there was, it would be showing, and the paper market manipulators would find it impossible to carry out their plans. Someone is filling the gap. As soon as it stops, the price must rise to reduce demand. Then, the supply that is still on the market will meet the demand.

      I believe a “not-so-mysterious” gold supplier of last resort dis-hoarded a huge number of tons in 2013, a few hundred tons in 2014, and somewhere between 600 and 1345 tons in 2015. This year, it would have had to dis-hoard even more than in 2015. Because it basically can’t be anyone else, my strong feeling is that it is the US Treasury.

      Thanks for your comment, and I hope that you and Ronan keep up the excellent work!

      1. The thing is that largely the UK has been supplying the gold (to China), which they net imported in the years before. If they were net exporters for years that would be a smoking gun…

  2. “All we need to know is what GS’s book of positions is and we will know how it ends”

    Interesting 1 minute CNBC interview in March 2015 with GS COO Cohn who is now Trump’s chief economic strategist and advisor. Plus compare prices on screen to today. Stocks are generally 10% higher. Gold is 1% higher, silver 10% higher, Copper 3% higher, USD 2.5% higher, Euro the same, Sterling 15% lower, Yen 5% higher. What is not shown are interest rates – all of which are significantly higher.
    The latter must be accompanied by even higher inflation to prevent collapse and Cohn knows it.


    Then take a look at Cohn’s comments over the years in link below. You get a strong sense that Cohn thinks the economic recovery is a con job and a weaker dollar is needed to make America great again with manufacturing jobs and higher domestic energy production.


    Sure seems like a weaker dollar and inflation is in the cards in US if Cohn and Mnuchin in Trump’s cabinet have their way. Especially with former GS executives Dudley, Kashkari, and Kaplan now in 2017 FOMC vampire voting members making up 25% of committee.

    GS knew Trump would win in September. That’s why they banned contributions to Trump. And even fired a low level employee for buying $500 worth of Trump paraphernalia.
    Otherwise right now people would think they bought their way into Treasury (Mnuchin), NEC (Cohn) and Chief Strategist and Senior Counselor (Bannon -a cabinet-level position until 1993).


    It gets even better in these links. “Lloyd C. Blankfein, started at J. Aron as a gold salesman in 1981 just months after Goldman bought the firm. Gary D. Cohn, Goldman’s president and chief operating officer, was hired as a metals trader in 1990 and quickly established himself as a go-to guy to fix tricky situations.”


    Albeit given the unallocated gold & paper nature of the new Goldman Sachs led LME gold and silver futures contracts in London, their does seem to be a dogfight between GS and JPM (Comex monster) brewing:
    “The LME, ICE and the LBMA themselves are all launching futures contracts, trading platforms and who knows what else in an attempt to break up the centuries-old OTC” London gold market”


    Something big is in the cards with gold for certain.

  3. The gold market is a very secretive market. No conclusions are possible about the source of the gold sent to China unless all market participants open their books. The gold of Iraq, Lybia and many other countries has disappeared during the past decade without any trace. There is also illegal gold mining in many African and South American countries which nobody can account for. The gold does not have to come from the US Treasury. There are many other potential sources.

  4. As a matter of fact, if the manipulation of the gold price will continue in the coming years, then we will know for sure that the gold did not come from the US Treasury.

  5. Gold is woven into the society of India. It is the beating heart of Indian culture. Modi should be glad that there is so much real wealth in his country. When the Paper Ponzi Pirates can’t deliver metal and can’t make the demand for delivery to go away, the fan and the poop reach critical mass. I happen to think this will occur in Silver. When the time comes, the Pirates think a Silver failure would be less troubling.

  6. In India there is something called wealth tax – i.e if the immovable assets in your possession is more than 15 Lakh rupees, you are supposed to pay 1% of the excess as wealth tax. This is broad light robbery planned by government as these assets are just investments for their owners and not making them any money. This is a way devised by Government of India to force people to go to Bank deposits rather than physical assets like Gold, Silver, Property etc. Because any immovable asset will actually drain you money. Till now it was never a problem for common middle class people as nobody bothered for their wealth tax payment compliance. Even Tax department were after wealthy guys only. But now if you haven’t declared the gold you possess in wealth tax, then the Taxmen can confiscate the gold. This is basically done and made clear to public so that they keep the money in bank only and stop moving to gold ornaments.

    You need to understand the Gold in India hold heavy emotional value. Many of it may have been inherited through generation. They will not go for open confiscation but if you dare to speak against the Government; be sure they most probably will be at your house for your gold.

  7. Trumph was villified by the so called “liberal” main stream media for abt an year now. “Madman” Modi has edured it for more than 15 years.

    Around 70% of Indian’s in the labour market are farmers , but only 2.5 % of the total population of India care to file their income tax returns. If in the post demonetizatio era, this increses to even 5% , then the Modi “madness” that most people in India are supportive of (unless u go by the media), can be termed as a success.

    In a country where 90% of the transactions are in Cash, if becos of the paucity of cash an additional 5% of the merchants shift to digital transfers, it would do quite some wonders to the indirect taxes. Add to that the GST which is expected to roll in sometime next year, the effectiveness of which is dependent on the changed mindset from cash to cashless transactions. And the there is the poverty alleviation schemes which are presently heavily dependent on middlemen/brokers who can be done away with thru direct money transfers digitally. Brutally sucking out around 85% of Cash is perhaps the quickest way to get to these objectives and more …. There is a method to the madness of Modi.

    For all practical purposes, Trumph is America’s Modi.

    So back to Gold. Will “Madman” Trumph revert back to the gold standard ? What will be the consequences to the Global Economy if US reverts back to Gold Standard ? How about an article on this ?

  8. ” and economists now expect the demonetization of 86% of India’s money supply to cost several GDP percentage points.” It is going to cost a lot more than that. Modi has clumsily and singlehandedly created a depression, and may very well be in thrall to the central bank, which is in turn owned, as in the U.S., by their big banks, who would like nothing getter than to eliminate cash and simply and with no interference take a little bit off the top of every single financial transaction.

  9. The author seems to be angry at gold price falling because of Modi. He does not know how to express his frustration. Let every body know the difference between Indian gold purchase and others. The Indians are not traders in gold they mostly buy and never sell it for profit. So here it is near permanent absorption and this is the type of buying that can sustain the price. The other buyers normally trade it like an investment or stock and this cannot sustain the price.

    1. The author is NOT angry at gold prices falling because of Modi. Nor angry at Modi. I am not an Indian and have never suffered through what the Indian PM has done. In fact, I don’t even believe that anything Modi has done has caused a reduction in gold prices. His actions are sure to have increased, rather than decreased long term demand for gold in India.

      My purpose is and was to educate the public, by pointing out the wide extent of the disinformation that was being spread. That disinformation was not created by Modi or his administration. It was created and spread by market manipulators, now desperate to exit “imaginary” gold short positions, in London and NYC, before the Trump administration cuts off their easy access to the US gold reserve. If they couldn’t trick people into panic selling, they would have had to lose a lot of money by escaping their short positions at a big loss.

      I am fairly confident that access to the American gold reserves have been critical to the manipulation of gold prices because the gap between supply and demand, absent mobilization of the US reserves, is far too big. The manipulators are (were) using Modi as an excuse, and a means of tricking people, and softening up the market in preparation for their escape. That is the point of the article. Please read it more thoroughly and it will be clear to you.

  10. Nice article but rather than taking Demonitization in that much extent it can be considered as one of the factor the same way how we considered US elections, Brexit etc. Infact these all factors helps in maintaining market seriousness. I too felt bad for nearly 10-15days after Demonitization but later on i continued with my activity of Trading and got better returns in that situation too. This happen only because i took tips service from SquareIndia Advisory Pvt Ltd. They guided me when to buy and when to sell. Not only this time they guided me all the time in taking serious decisions about trading. Some of my friends though not into Trading took their service so that they can make apt decisions in their forms of investments. So it would be good for everyone to have a look on SquareIndia Advisory Pvt Ltd rather than thinking and remaining quite.

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