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Commentary

Now Mecklai Pushes For Temple Gold Sales

I had written in June 2013 that India should sell all the excess gold in temples. (Excess, because some gold is on the idols). This resulted in people getting quite angry and beating me up (metaphorically) and all that.

Perhaps James Mecklai might change their mind. He writes today that the only way out for the government to cut the current account deficit is an idea that goes like this:

The FM and the Governor should offer the Tirupati trustees annual earnings of, say, 3,000 cr [2% interest on 500 tonnes of gold] PLUS savings of the cost of storage of the gold, which, itself could be a significant amount. And, of course, that the gold would be safe with, say, State Bank of India and that it can be retrieved at one day’s notice. It’s hard to see how any trustee could turn this down.

On the market side, SBI could hold part of the gold hoard – even as much as 40% – to support any sudden withdrawal, although the beauty of starting with religious trusts is that they don’t really need to ever withdraw the gold. The balance – 60%, or 300 tonnes – can be sold in the domestic market, with the price risk on the sold gold hedged off-shore (at a cost of around 1% a year). SBI would get about 85,000 cr [300 tonnes at $ 48.5 million a tonne] of rupees at a modest cost of 2 to 3%, which it could deploy in lending or, till demand picks up, in government securities. And, critically, gold import demand would collapse, taking the CAD down with it.

I’m just a small cog somewhere, but I hope more people like Mecklai come out with similar views. Maybe something will happen.

I’ll go one step further – we don’t need to hedge this gold demand. If we sell the gold, and prices come down or the dollar comes down, or both, we can easily buy back the gold or hedge it at a much lower rate.

I am not religious, so I don’t hold this gold sacred. Flooding the local market with local gold will destroy imports, and also the international gold market which plays on the huge demand from India. But that’s how markets are supposed to behave – temples have needlessly held up inventory.

The chances of this actually happening are: zero. Politics trumps everything in this country.

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