Physical gold or paper gold? Indians choose

This July, the Indian government has sounded a warning bell regarding the flow of black money in the country, and has decided to attack down the flank, particularly in gold. The country that shares with China first places in gold demand worldwide could start buying paper gold soon.

What would be the influence of this change in the gold market? Will the country accept it?

The battle against undeclared money is a long-standing issue that the Indian authorities are willing to remove once and for all. Now they believe to have hit the nail finding the root of the problem and its solution: one of the practices to hide dirty money is the purchase of gold jewelery, so much the order of the day in this nation.

This is the argument put forward by Narendra Modi's government when explaining why it is relevant to increase the transparency of such purchases and change the trend of gold jewelry for that of paper gold. Another rule is that, for buying gold worth more than nearly $1,580, the Indian people will have to hold PAN cards (Permanent Account Number).

The jewelry trade strongly believes a more controlled purchase of gold jewelry will not stop others from having black money, and instead will impede inhabitants from storing their wealth in a safe way. That is why, a spokesman of All India Gems and Jewelery Trade Federation declared that no jeweler will deny a person to buy gold just for not having the card.

For now there is no final decision on PAN cards, though if there will be, jewelers have already started issuing small invoices and informal receipts as an alternative for the purchase of the precious metal.

Bearing in mind that out of 1.25 billion inhabitants, just 140 million have PAN cards, and the fact that buying gold jewelry is a well-entrenched tradition in the Asian country, the public opinion is certainly reluctant to accept this proposal.
Besides, the intentions to change the nearly 300 tonnes of gold demand per year for bonds linked to gold bars' price – paper gold - and give away the gold stored at home, are options that haven't even entered their heads. Not just tradition, but also the well-known role of physical gold to ensure confidence in the future are key in this issue.

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