Today’s articles will have a decidedly international theme, in our quest to demonstrate that not just America that faces a potentially disastrous financial future. The U.S. clearly has the furthest to fall – from the heavenly perch ceded it by 1944’s Bretton Woods agreement, in which the dollar became the world’s “reserve currency.” However, the entire world committed to hyperinflation in 1971, when it allowed the U.S. to renege on Bretton Woods by abandoning the gold standard. Consequently, all nations will share in the catastrophes that shortly befall the dollar.
Per the “Most Important Article I’ve Ever Written,” the average currency is down nearly 10% against the dollar during 2013, and closer to 20% since “Operation Twist,” QE3, and QE4 were launched in late 2011. Such exported inflation is the direct cause of the ongoing Arab Spring (for example, the Egyptian revolution); food riots in Turkey, Brazil, and Argentina, among others; and, of course, the draconian – bordering lunatic – anti-gold decrees of the embattled Indian government.
Over the past 12 months, we have been extremely vocal regarding the upcoming Indian implosion; at times, equating it to South Africa’s Apartheid regime, as a small minority of fiat currency loving Central bankers are attempting to prevent a billion Rupee-hating, gold-loving citizens from protecting their assets with real money. And particularly in light of this week’s passing of Nelson Mandela, the world is crystal clear on how Apartheid turned out. Generally speaking, Indians do not view wealth in terms of “rupees”; but instead, real items of value like gold and silver. And thus, the government’s oppressive Precious Metal import tariffs – for both metals, raised to 10% this year; and even an outright ban on banks selling bullion coins, has created nothing short of a political typhoon – which is already starting to collapse on the Western lackeys running India’s government.
In Stephen Spielberg’s epic dinosaur flick, Jurassic Park, Jeff Goldblum’s character notes the conundrum of an entirely female population appearing to reproduce. Ultimately, for lack of evidence otherwise, he avers that “life finds a way.” Which it certainly did; as has been proven – for example – by the common reed frog, which has been known to alter its reproductive organs if a population is too heavily weighted to one sex.
What point, are we making, you ask? Simply, that the Indian government is already failing to rein in Precious Metals demand; and in fact, has inadvertently increased it. Briefly, Indian gold demand declined when the final, draconian decrees were announced in August. However, since then, the tide has dramatically turned against the government; which, in our view, could prove a significant turning point in the rapidly evolving, global war against real money.
In India, it all started in early 2012; when the Rupee was still trading at 50/dollar, versus today’s near record low of 62/dollar. At the time, the Indian government commenced its current propaganda scheme, claiming excessive gold imports were causing the severe trade deficits that in turn, negatively impacted the rupee. Such Orwellian “doublespeak” makes zero sense; as in fact, “excessive” gold imports are but the symptom of money printing gone wild, not the cause. However, with the Fed and other Western banks calling the shots – per John Connally’s famous quote, “It’s our dollar, but your problem” – India’s leaders desperately sought rationalization for their suicidal policies. And thus, the tried-and-true gold scapegoat strategy emerged. As a side note, it’s quite ironic that the Bank of England still has the power to inflict mass destruction on its former colony, don’t you think?
In March 2012, initial rounds of gold tariffs and import restrictions led to a 21-day jewelry industry strike, which ultimately cost it $4 billion of revenue. However, the strike ultimately ended when the government gave in; realizing the political and social ramifications of a shuttered jewelry industry – in a nation where jewelry stores are the equivalent of Western banks – would be catastrophic.
The status quo remained throughout 2012; that is, until the full effect of the aforementioned, Fed orchestrated, global money printing groups washed ashore, in the form of surging inflation and a weakened economy. In fact, most of this money printing was directly related to the bailing out of a dying Europe – and saving the Euro, utilizing “whatever means it takes” to do so. And thus, a perfect example of Western Central banks exporting inflation to the East; creating cataclysmic, unforeseen consequences.
By the beginning of 2013, India’s inflation was spiraling out of control; and thus, the government re-commenced its war on gold. Premiums on gold and silver imports were raised to 10%, and gold jewelry to 15%. Moreover, banks were prohibited from selling gold coins to retail customers, while 20% of all gold imports were required to be re-exported. These final, oppressive decrees were announced in August; which, as you can imagine, had the opposite effect of what was intended – as the Rupee plunged temporarily to a record low of 69/dollar. Following massive, overt government intervention – no doubt, covertly aided by Western Central banks – it has since stabilized in the 61-63 range. However, it clearly appears to be bottoming, particularly in light of the accelerated Western (and Japanese) money printing evident in recent months.
Initially, the Indian gold import market seized up; as it took time for Indian citizens to “find a way” to continue purchasing gold. However, in the meantime, silver imports rocketed higher; as 10% tariff or not, “poor man’s gold” was clearly a significant value. In other words, a perfect example of the ramifications of the Cartel suppressing prices at such fire sale levels; as quite clearly, 2013 Indian silver imports will exceed the 2008 record level of 5,048 tonnes – in the process, consuming roughly 25% of worldwide production. By the way, does it not seem “fishy” that Indian and Chinese silver imports are hitting record levels this year – along with U.S. Mint and Royal Canadian Mint sales of Silver Eagles and Silver Maples, respectively – whilst dollar-priced silver prices are down 35%?
Frankly, the speed at which the Indian black market has emerged is frightening; as in just a few months, gold smuggling has surpassed not only that of diamonds, but narcotics as the nation’s largest illegal activity. In this case, both the “criminals” and their buyers are on the “same team”; and thus, the Indian government’s worst nightmare appears to be commencing. To wit, here in the U.S., we have written ad nauseum of the inevitable separation of physical pricing from the fraudulent COMEX paper market. For all we know, it will occur this month – if enough of the COMEX’s dwindling registered inventories are drained by the December delivery process. But even if it doesn’t, it certainly will in the future; particularly if a new financial crisis causes the U.S. government to institute the type of draconian capital controls currently occurring in India. Heck, we saw it back in 2008, when the Cartel’s blatant PM smash caused silver to sell out worldwide and physical premiums to explode to nearly 100%.
Anyhow, this appears to be happening right now in the Indian gold market – per this fantastic article by Jeff Nielsen. Physical premiums over Western paper prices nearly touched 25% earlier this month; and thus, the going rate for physical coins and bars – you know, the same ones we sell at Miles Franklin for less than $1,250/oz. – is nearly $1,500 in India; i.e., the world’s largest gold-loving population!
Worse yet for the Indian government’s ill-fated scheme to control the uncontrollable, last week’s key regional elections were an across-the-board defeat for the ruling “Congress Party.” The hands down winners were the pro-business, pro-gold BJP party; and thus, the odds that its leader, Narendra Modi, will be elected Prime Minister in next May’s general election are extremely high. And if that wasn’t ominous enough – for the dying anti-gold crusade, that is; it appears that many, if not most Congress Party leaders are personally invested heavily in gold and/or gold jewelry, per these pre-election financial disclosures. In other words, the “trap is closing” on India’s maligned government; and if the Rupee continues its descent toward new lows, the odds of a full-blown currency revolt will rocket higher. There’s a reason we have considered India as “most likely to catalyze the “big one” – ranking it up there with well-known basket cases like Greece and France. And given what is currently occurring in India, it would not surprise us if something as terrifying as it is dynamic commences in 2014.