That might change this month — emphasis on "might" — as the India Government Mint will issue its first sovereign gold coin, just in time for the fall festival season, which kicks off November 11.
The coin will reportedly feature the Ashoka Chakra, the traditional, 24-spoked symbol that appears on India`s national flag.
Consider the immense popularity of the American eagle, the Canadian maple leaf, the British sovereign, the South African krugerrand and others — and now this month, India`s coin will join their exalted ranks.
You might wonder why India, whose notoriously insatiable demand for gold stretches back millennia, has only recently decided to join other nations in issuing a sovereign gold coin.
The answer has much to do with the government`s interest in trimming massive net inflows of the yellow metal and containing its impact on the country`s trade balance. As I said, gold is so highly valued by Indian citizens that once it enters the country, it stays in the country, largely as family heirlooms.
The World Gold Council estimates that 50% of Indian wedding expenses is in gold. And when you consider that about 20 million weddings occur each year on average in India — many of them featuring gold in some capacity — it becomes clear that this affinity to the precious metal is shared by all.
Furthermore, because many Indians distrust government banks, they prefer to protect their financial security by holding physical gold.
And who can blame them? India`s own central bank holds more than 557 tons of the metal for the same reason: financial security.
But apparently the government takes the position that you can have too much of a good thing, even something as precious and auspicious as gold, and therefore seeks greater control on how it manages net inflows.
"Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country," says Arun Jaitley, India`s finance minister.
But will Indians be buying? It`s probably too early to tell.
Indian government policy to change gold investing
What can be said is that the plan to issue the coin is part of a broader government strategy to change the way Indians invest in gold. I always say that government policy is a precursor to change, and the new policies announced back in the spring are scheduled to go into effect soon.
One such program involves a gold bond, "which would not be backed by gold," explains Jeffrey Christian, a managing partner at commodities-consultancy-group CPM Group, who spoke recently at the Denver Gold Forum.
Instead, the bonds would be issued by the Reserve Bank of India, the underlying assumption being that some Indians would prefer gold-indexed bonds to actual bullion.
"And so they think that they can discourage physical gold demand because it put stress on [the government`s] current account balances a few years ago," Christian says.
Then there`s the so-called gold-monetization scheme, a program designed to encourage individuals and temples laden with gold to voluntarily deposit some of their bullion in exchange for a "2% or more" interest rate.
Theoretically, the gold would be held on deposit. In practice, however — again, according to Christian — it would be lent or sold to the jewelry industry, thereby reducing gold imports.
This means, of course, that the bullion — including everything from gold trinkets to cherished wedding ornaments — would be melted down.
The government`s multifaceted strategy might not be as drastic as the one enacted by US President Franklin D. Roosevelt in 1933, which forbade the "hoarding of gold coin, gold bullion, and gold certificates within the continental United States." For now, Indians` participation in the two progressed programs is voluntarily.
"Given the cultural and traditional affinity of Indians to their family-owned gold ornaments," Unnikrishnan writes, "the only incentive for them to come forward and pledge their gold under the scheme is higher returns."
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