Can you imagine a desperate central bank, in this
case India, trying to re-claim its physical
from the Fed vault!!!??? It's a no-go busted trade. The Fed issues IOUs for
their custodial gold. That's all the rightful owners get - - just what us
peons get Fed Note IOUs redeemable in nothing, nada, nyet,
rien. The Feds were no fools they knew all along
that "possession is 9/10 of the law(?)".
Think it through further: most of the physical gold
is rapidly moving into private hands, leaving banksters
and duplicit governments destitute and denuded of
the wealth they stole from us! Any physical gold bars still in the Fed or
LBMA has been re-hypothecated and encumbered so many times - - a la the US
home mortgage fiasco - - nobody knows who the rightful owner is!
IF, this proposed 'sale' of 200 tons of gold by
India is real grab all you can. There may not be any more where that came
from.
Is A Foundering India About To Flood The Gold Market With 200 Tons Of
"Leased" Gold
Posted on Zerohedge by Tyler Durden on 08/21/2013 18:05 -0400
The
truth behind the saying "never let a crisis go to waste" transcends
both time and space, and it most certainly has no problem crossing the border
into India, which over the past weeks has found itself in full monetary
crisis, and whose currency is plunging to fresh record lows on a daily basis
forcing its central bank to scramble with both tightening and QE at the same
time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity.
Potentially for that someone which over the
past two months has found themselves in a huge physical gold shortage as the
now constantly negative GOFO rates confirm. Because according to Royal Bank of India sources cited
by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary
Fund in 2009.
For India, this may be the nuclear option: its
central bank, starved for dollars, is considering every initiative to procure
short-term dollar liquidity to fund massive USD-denominated investor
withdrawals out of the country, which as hammering the Indian Rupee, and
which if unmet, threatens the entire financial system in the country.
Indeed, as the HBL reports that the gold will be leased in the international
market for dollars so as to shore up the sagging rupee, which plunged below Rs 64 against the US dollar in Tuesday’s trade. A final
decision may be taken next month, Finance Ministry sources said.
The move can fetch around $23 billion, David Gornall,
Chairman of the London Bullion Market Association, has estimated.
This marks a tidy increase in the Reserve Bank of
India’s investment. In November 2009, the RBI purchased 200 tonnes of gold from the IMF, under the Fund’s limited
gold sales programme, for $6.7 billion, cash.
$23 billion for a $6.7 billion investment: not a bad return. And why
not do it: after all it's not like India actually has possession of the gold,
which most likely is located somewhere deep beneath
the New York Fed. Ot is that the JPMorgan office at
1 CMP?
According to RBI sources, this gold was never brought into the country. It
was just a book transfer.
Speaking at the India International Gold Convention
in Jaipur last week, Gornall had said the RBI can organise a gold-dollar swap without divesting its holding or incurring any further interest charges.
“By swapping gold for a payable currency, you can benefit
by having access to dollars for a period of your choice, while remaining a
long-term holder of the gold, as the swap is a transfer of asset for a
limited period. You will have bullion bank counter-party risk but this is
successfully managed at the RBI, which has the strictest lending criteria of
any central bank in the world,” Gornall had argued.
Finance Ministry officials agree.
Remember when Bernanke said gold is not money? He was right: for India, it is
more.
Talking about the leasing arrangement, a Ministry official said that since
gold was the most liquid of assets, it can be readily leased,
and returned by the lessee to the lessor any time.
Further, a lease transaction means the RBI’s gold
holding will not come down even as it unlocks the asset’s value.
What is left unsaid here is that there is a flipside to the $23 billion for
$6.7 billion quid-pro-quo. The leased gold may just stay with the lessee
should the Indian crisis accelerate, and should it find itself unable to
stabilize the situation in the near term, leading to a full USD-exodus, one
which wipes out the country's entire exchange reserves. Currently,
India has foreign exchange reserves of around $278 billion. Which is great if India had no other USD cash needs, however,
being a net importer, thsi amount would be
sufficient to fund the import bill for about six months. In other
words, the country's regime can get emergency liquidity, however if it
doesn't stabilize its monetary situation in half a year, then all bets are
off, and the warrants attached to India's gold in the FRBNY gold vault will
quietly be reattached to some other entity.
Finally, and as reported here extensively, India has recently set off on an
unprecedented series of capital controls when it comes to its domestic gold
market, desperate to prevent a negative current account where citizens
convert a rapidly devaluing Rupee into gold, a dynamic which will have only
accelerated as the INR has plunged to records over the past week. What
message will the RBI send to its people if it itself is forced to rely on
gold as the final backstop to its operations is very much clear. What is
unclear is what happens as ever more paper currency is converted in yellow
metal in India, exacerbating the current account deficit, and resulting in a
Catch 22 where the central bank needs more and more sources of liquidity to
offset the outflow of currency.
The good news, if any, is that at least someone will satisfy a craving for
200 tons of physical, which can than be repackaged
in the form of the paper gold market into an infinity of paper claims on the
underlying gold, to which nobody really holds title except the actual
custodian of the physical.
Perhaps most amusing about the above episode is that when India's Economic
Affairs Secretary, Arvind Mayaram,
was sought for commentary he said there is no proposal to lease the purchased
gold. His comments came in a text message. We will check back with him in a
week or two.
SOURCE: ZH