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India’s Black Money and How it Could Affect the Price of Gold

India's Black Money and How it Could Affect the Price of Gold

When Donald Trump’s presidential campaign launched on June 16, 2015, the majority of experts predicted the winner of the 2016 presidential race would be Hillary Clinton. However, when polls closed on November 8 shock, confusion and, in some quarters, amusement swept across the nation. We were so gobsmacked many of us failed to see a financial earthquake half a world away.

We feverishly asked ourselves whether the New York mogul’s management style would impact America positively or negatively.  While that remains to be seen, one thing is for certain: Gold did not do so well after Trump’s victory. Now the question remains, did the price of gold plummet due to political uncertainty relating to America’s new president-elect, or is something else behind the slump?

Lately Indian Prime Minister Narendra Modi’s name has come up in relation to the slump in gold prices. Since India typically demands more physical gold than any other excepting, sometimes, China, there is a possibility the precious metal may have been influenced by more than Trump’s surprise win.

Narendra Modi and the Price of Gold

Born September 17, 1950, Narendra Modi is the current Prime Minister of India, and the 14th to take the hot seat. Modi took office on May 26, 2014, and since he became Prime Minister he’s worked hard in focusing on the welfare of India’s poor people. Although he has faced some controversy since he took power, there is no denying that he has accomplished a great deal. From taking a stand for his nation’s investment in cutting-edge science, to overhauling the subcontinent’s highway system, Modi is a man with plans. In November 2015, the Indian Gold Coin and the Indian Gold Bullion launched. As the Indian government’s first national offering of gold, it was quite a bold move to make.

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Forcing a Nation to Play by New Rules

So what exactly was Modi’s plan when he got involved with gold? Is it part of his campaign against India’s underground financial system, so-called “black money,” which accounts for almost a quarter of the country’s economy as a whole?

In a drastic move, on November 8 Modi, without warning, eliminated India’s existing 500 and 1,000 rupee notes; a move experts likened to a U.S. president summarily voiding all Americans’ twenty and hundred dollar bills.  Law-abiding Indians scrambled to save their cash, particularly since the Prime Minister acted before the new bills were in circulation.  The dramatic move was partly intended to stymie criminals and income tax evaders who frequently launder large bills by purchasing gold with them.  It was also a push to get Indians to put their cash in banks, rather than holding it at home.

Since our election and Modi’s money move happened virtually simultaneously (possibly not a coincidence), both Donald Trump and Modi have been blamed for a decline in the price of gold, despite the fact Trump has always appeared supportive of precious metals investments.

Whichever the straw was that momentarily broke gold; the resulting lowered prices are drawing worldwide interest. When this inevitably turns to a spike in demand in the days ahead, the precious metal will really start to shine.

 

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