Two important unanswered questions about the gold monetization scheme

The first question is of course about the interest rate, and how much will a bank be willing to give out to investors.

As far as retail investors are concerned I feel it is really hard to get excitement going about the gold monetization scheme at anything less than 3 or 4 percent. I have a feeling it might be feasible to get to a rate like this or even slightly higher than this since banks are allowed the gold reserves as part of their CRR / SLR reserves, and there may be a market for them to lend this gold and make a profit.

Pot of Gold
Gold Monetization Scheme

The second question, and one that has not been discussed as much is the paper-work that will be required when you take your gold to get it melted. Do you need any paper work at all to show that was bought in white or can you take any gold at all? This is obviously important because of the realities of our economy.

A lot of gold is bought in cash, and through money on which tax hasn’t been paid. When you talk about black money you tend to think of crores of rupees locked up in Swiss accounts but any retailer or professional who has under-reported his income and not paid tax on all of it has black money and they are not necessarily cheats or corrupt officials, they have just found ways around our tax system which isn’t good at enforcement when it comes to anyone outside of salaried employees.

Most commonly such money finds its way to gold and real estate, and if the government is introducing a scheme which looks at channeling gold into the economy and all above board, it is important to take cognizance of this reality and not be insistent on asking for paperwork when someone wants their gold melted as part of this scheme.

12 thoughts on “Two important unanswered questions about the gold monetization scheme

  1. This is perfect post to read in the morning 🙂

    Gold was never been lucrative investment for me. I always convinced people to not invest in physical gold unless they are going to use Gold physically in future (like in marriage).

    People pay brokerage charges to banks or jewelers when they buy gold, then they have to pay brokerage again on selling. It is always security issue to keep Gold safe.

    In recent years Gold prices have not appreciated more. Some people are still in losses.

    I prefer to buy Gold ETF rather than physical gold.

    What’s your opinion?

    1. I’ve always preferred Gold ETFs and I think I was one of the earliest bloggers to write in their favor back in the day when people worried whether they even actually have the gold they say they have.

      1. Manshu,

        You are maintaining a terrific blog on finance. Actually I have also started writing on personal finance recently. There is a lot to learn from you & your blog.

        May I ask you to provide feedback on my blogs?

        1. Thank you Pardeep.

          I’ve read a couple of posts and you’ve made a good start. I saw a lot of frustration creep through the credit report post, and I’d recommend a little more caution towards that. If you are writing for an audience you must keep in mind the benefit the audience can draw from your post. Calling a customer service rep a moron does no one any good, and certainly takes away from your credibility. So, I’d advice keeping the benefit of readers in mind and editing the post with that mindset once you’re done writing.

          1. Thanks Manshu,

            Appreciate your help, you are right. I have updated post but still frustration reflects in article because it was actually written to vent out frustration.

            I have mentioned your name in post for your kind help. Please take a moment to check again – How I repaired credit history in India

            Can I write you few words personally? You have my email-id.

  2. Thanks again for the wonderful post.

    I was chatting with a senior citizen who invests in physical gold. she was mentioning that only gold refineries will buy back the Gold. So for investment, buy/sell gold only to refineries. I was not in favor of ETF as there is no telling if they actually have the physical GOLD.
    With the new scheme my biggest question is, if i buy gold from a refinery, deposit in the bank scheme, do i have to pay wealth tax ? If i understand right, wealth tax is on wealth accumulated (something which is not helping economy)…now since this gold is put back into economy..does wealth tax still apply ?

    1. Little bit of rabble rousing here I think, paint people at the RBI as guys sitting in ivory towers, can’t say I am very impressed with it.

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