Interest Bearing Gold

Thought experiment. Assume the physical gold is independently monitored and this is not a paper gold scheme. If the banks offered a gold lending program that paid positive interest in gold, would you be more or less likely to hold gold?

If the U.S. government offered a 10-year Treasury priced in one ounce of gold and agreed to pay back the gold in American eagles in 10-years time, with interest of about 2%, such that if you own 10 bonds, you would receive 11 ounces of gold and cash for interest not equal to 1 ounce of gold in the equivalent U.S. dollar price at settlement, would you swap your gold? If you don't own gold, would be more or less likely to buy gold if you could swap your gold to the U.S. Treasury at interest?

Modi government eyes temple gold

Now, the Narendra Modi government reportedly wants to get his hands on this temple gold, estimated at about 3,000 tonnes, more than two-thirds of the gold held in the U.S bullion depository at Fort Knox, Kentucky, to help tackle India’s chronic trade imbalance.

The Modi government is planning to launch a scheme in May that would encourage temples to deposit their gold with banks in return for interest payments, it is said.

The government is likely melt the gold and loan it to jewellers to meet an insatiable appetite for gold and reduce economically-crippling gold imports, which accounted for 28 per cent of India’s trade deficit in the year ending March 2013.