Over the past year and a half India’s finance minister, P. Chidambaram, has been fighting his country’s insatiable appetite for gold. on the theory that gold imports are creating a current account deficit and weakening the rupee. Consequently, Gold import duties have risen tenfold – from 1% at the start of 2012 to 10% today. The Excise Duties now stand at 9% while new rules such as strictly cash only for imports and transaction taxes among other punitive measures have shut down India’s gold industry.
Some of the anti-bullion measures are now being lifted and the $300 million Reliance Gold Savings Fund, India’s third largest gold-backed investment fund, will now accept fresh investments again after a 12-week hiatus citing a stronger rupee. The fund had suspended sales at the beginning of August.
Yet behind the veil in India there has been another twist to gold. One way around banking laws has been to create an account that automatically deducts funds from your payroll and that goes toward buying gold. However, at the end of the year, you can elect to sell the gold and withdraw the cash. Such schemes have led some to presume the demand for gold is actually higher than it actually is. Nonetheless, Indian demand for gold in jewelry is a cultural issue that sumptuary laws will not alter.
In the USA before 1975 when gold was illegal to own, the loophole was coins. Why were coins exempt? Because Teddy Roosevelt was an ancient coin collector. Franklin knew that ran in his family and thus excluded coins from the act. The famous 1907 $20 High Relief gold coin was created because Teddy wanted American coins to be a beautiful high relief as made by the Greeks. The modern machines could not cope with that quality and the coin was replaced with the more typical low relief. But thanks to Teddy Roosevelt, people could still buy and hold $20 gold coins in the USA even when gold bullion was illegal to trade or buy. Sometimes you just have to dig a little deeper to get to the full story.
