Indians Smuggle Gold From Dubai; Can Asia Corner the Gold Market?

Smugglers smile as NRI carriers bring gold into country legally

It was evident last week when almost every passenger on a flight from Dubai to Calicut was found carrying 1kg of gold, totalling up to 80kg (worth about Rs 24 crore). At Chennai airport, 13 passengers brought the legally permitted quantity of gold in the past one week.

"It's not illegal. But the 80kg gold that landed in Calicut surprised us. We soon got information that two smugglers in Dubai and their links in Calicut were behind this operation, offering free tickets to several passengers," said an official. The passengers were mostly Indian labourers in Dubai, used as carriers by people who were otherwise looking at illegal means, he said. "We have started tracing the origin and route of gold after intelligence pointed to the role of smugglers," he said.

Reports from Kerala said passengers from Dubai have brought more than 1,000kg of gold in the last three weeks. People who pay a duty of Rs 2.7 lakh per kg in Dubai still stand to gain at least Rs 75,000 per kg, owing to the price difference in the two countries. Gold dealers in Kerala say most of this gold goes to jewellery makers in Tamil Nadu and Andhra Pradesh.

NRIs are non-resident Indians. It is legal for them to bring in 1 kg of gold.

All the Western gold bugs can be clueless rubes who believe in outdated monetary policies, and it still doesn't change the fact that rising incomes in India and China are fueling gold savings and consumption, plus some investment.

The longer the gold price remains low, allowing Asians soak up ever more global supply, the greater the chance for a dislocation in the gold market. Many gold bulls are looking for the next move up and see manipulation in the gold price, but I still believe it has more to do with social mood and the lack of demand for credit.

As laid out in Gold Lied, Inflation Died, inflation expectations collapsed because credit growth rates have collapsed. Gold is a casualty of this trend and even some inflationists such as Michael Pento have come around to this argument.

Nevertheless, this is only one part of the story. Eventually, investment demand for gold will bottom, while demand from Asia will continue growing. Short of a major deflationary wave that wipes out emerging markets (a non-zero probability) and takes gold to the Elliot Wave targets sub-$1000 and even sun-$500 (though you may be unable to obtain physical at the price), the current trend in gold prices and demand is very bullish for the long-term.

Today, it is very easy for small investors to buy gold. Supply is ample, premiums are low and the price is low. The gold bugs are not clueless rubes who believe in outdated monetary policies; they are merely off on their timing because they didn't factor in the destruction of credit money. Eventually, a great price will be paid by the money printers in New York, London, Tokyo, Frankfurt, Beijing, New Delhi, and gold will be the cure for their pain. It could come next year or as long as 15 years from now, but the day of reckoning is coming.

All the while, the number of people acquiring physical gold for long-term savings is growing. A slow motion "corner" is being effected on a global scale and the tighter the grip of the bulls, the smaller the available gold supply. How tight is the Indian saver's grip on gold? They are smuggling it into the country by the kilos to evade government restriction on importation, a policy specifically designed to crush this demand! There will be only one way to break open the gates and get the gold flowing to the mass of savers and investors across the world when the next global financial crisis erupts, and that will be an incredible rise in price relative to nearly all assets.

H/T: Liberty Blitzkrieg