Over the weekend news reports picked up on rumors that India may ban imports of gold. Indian Prime Minister Modi recently announced that 500 and 1000 rupee notes be banned, leading to long lines at banks and gold vendors. Reports indicated most people hurried to either convert big notes into smaller notes, or buy expensive things to dump large notes en masse.
The Gold Enthusiast always has grave concerns about the sanity of politicians in decisions like this. Yes, drug dealers use large bills. But banning large bills does nothing to change the human psyche, or the pressures in life that point people toward drug abuse.
And Yes, “underground economies” like buying and selling on Craigslist are very big in dollar terms. Local and national governments would love to dig their tax claws into those sales. Mostly to fund bloated band-aid social support programs that don’t address real problems. After all, real problems are hard to solve. And politicians are notorious for coming up with the right answers to real-life issues 20 to 50 years too late.
In trading terms, such things change the environment, which of course affects supply and/or demand, which affects pricing.
A gold ban wouldn’t be 100% effective, as people would find ways to smuggle gold into the country. So a ban would create demand for a new kind of crime. (Great. Just fantastic. Go politicians.) But we’ll leave this point and move on.
