The Indian government has announced that India Post Office branches will stop selling 24k gold coins August 1, leaving millions of rural Indians with no investment alternatives. Only 6% of India's small towns and villages have a bank branch. The extremely popular coin program has sold 999 fine gold coins in seven sizes, from 1/2 gram to 50 grams, sealed in octagonal tamper-proof slabs. The coins are minted for India Post by Swiss refiner Valcambi.
Officials hold out the possibility of allowing coin sales to resume during holidays.
The government recently continued its war on gold imports, mandating that no gold may be imported at all unless it is sold only to jewelers or bullion dealers who sell only to jewelers. Not only that, but 20% of all imported gold is to be impounded in Customs warehouses, and must be used for exported jewelry. Companies will not be allowed to import gold at all until they have used at least 3/4 of the impounded gold in exports.
The problem with this is, jewelry exports in India amount to approximately 70 tonnes a year. Domestic gold consumption was over 864 tonnes in 2012.
Even before this new law was announced, the All India Gems and Jewelry Trade Federation urged its members to stop selling gold coins and bars, due to the severe shortage of gold. A spokesman warned that the government-induced gold shortage was driving the public into the arms of "smugglers and the mafia."
Smuggling has already exploded across India, with more organized crime gangs using couriers to smuggle gold on their persons or belongings. Most of the ones caught are first-time amateurs from poor backgrounds, who may have gone to Dubai to look for work as laborers. These people usually try to hide the gold in their body cavities, shoes or socks, or taped to their person, and are caught due to their suspicious movements. One common myth seems to be that wrapping the gold in carbon paper will render it invisible to the special gold-seeing metal detectors now installed at many airports in India.
Then there are the "mules" of the gangs or organized crime operations. These people are paid a set amount if they can get the gold through customs, plus expenses. In these cases, few are caught unless police receive a tip regarding the specific person. Some of the ruses used have been inside fake components soldered inside LED TVs, inside roll-on suitcase handles, taped to the underside of luggage carts before reaching the scanners, and hidden in cell phone and laptop batteries.
Thomson Reuters GFMS estimates that smuggling in India this year will increase by 40% to 140 tonnes. Other analysts have put the possible totals of smuggling this year as high as $5 billion.