Categories: Base Metals / Energy / General Market Commentary / Precious Metals
Topics: General Base Metals / General Energy / General Market Commentary / General Precious Metals

Global War on Cash Triggers a Gold Rush by Gerardo Del Real

Global War on Cash Triggers a Gold Rush

by Gerardo Del Real

Indian Prime Minister Narendra Modi has announced that the 500 ($7.60) and 1,000 ($15) rupee banknotes will be withdrawn from the financial system overnight. They can now only be converted to Rs 100 (~$1.50) or lower denomination notes, at bank branches or post offices.

The result was bank runs and people desperate to convert currency. India’s economy is based primarily in cash, and the liquidity crisis for the elderly or people not able to convert their currency because of logistical challenges has the potential to lead to a social crisis on a scale that is hard to predict.

Economists say the move will be beneficial in the long run, as it is targeted at weeding out tax evasion and corruption. Unaccounted money makes up nearly a fourth of the economy.

The banknote ban is very simply a way to facilitate negative interest rates in the future and to make taxation of every note in circulation much easier. It’s also the first step towards a cashless society.

Credit Suisse estimates more than 90% of consumer purchases in India are made in cash.

Prime Minister Modi was quoted over the weekend as saying, “I want to tell my small merchant brothers and sisters, this is the chance for you to enter the digital world.” He then threw in:

“It’s correct that a 100 per cent cashless society is not possible. But why don’t we make a beginning for a less-cash society in India? We can gradually move from a less-cash society to a cashless society.”

Bloomberg reported that the ban has triggered a gold rush. Here is how they described it:

“Jewelers who had shut shop for the day on Nov. 8 had to reopen their stores within a couple of hours and were selling gold up to 4 a.m.,” Chirag Thakkar, a director at gold wholesaler Amrapali Group, said by phone from Ahmedabad in Modi’s home state of Gujarat. “Customers were lining up with bags of cash. Some jewelers even had to call the police to organize the crowds.” Customers paid as much as 52,000 rupees per 10 grams, almost double the current prices (emphasis mine), he said.

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