GATA Featured at Kitco This Evening


Friends of GATA and Gold,


Beginning with gold coins. As you know, the growth in sales in recent
months has been dramatic. During the first six months of calendar year
1998 average monthly sales of American Eagles were about 96,500 ounces a
month. In the second half of the year sales climbed to an average of
210,000 ounces a month. Sales in January this year were 266,500 ounces.
More tenth-ounce coins have been sold so far in 1999 than were minted in
all of 1997.

In uncertain times gold coins offer certainty. It has been so since 1500
BC at least, when the two-thirds gold Sheckel was used as a standard
unit of measure throughout the Middle East. It will continue to be so
into the future that we can foresee.

To meet the demand for coin, the U.S. mint has been buying gold from the
Fed. But not enough. Rather than buy in all the gold that is needed, and
thereby risk a price rise, the mint has resorted to rationing coin

In an earlier GATA posting, Farfel wrote that the failure of the US Mint
to respond to greater than anticipated domestic consumer demand for gold
coins provided the most solid evidence of the Clinton government's
unyielding anti-gold bias. He proposed that smart gold investors, who
wish to protect themselves from a potential fiat currency crisis, should
buy foreign gold coins, in particular Chinese Pandas. Then the Chinese
government would move into the open market to buy whatever gold
necessary to fulfill the new demand, he wrote.

Well, let us look at how much gold is actually involved here -- at the
present rate of demand, just 100 tonnes for the whole of 1999. And
optimistically allowing for a 10 percent per month increase in demand,
to let us say 850 000 ounces in December, one is talking about 300
tonnes being required in all in 1999. Now this is not a great deal,
compared, for example, to the 700 tonnes of gold that India is likely to
import this year, as monetary jewelry mainly.

Indeed, 300 tonnes represents no more than 2.5 percent of all private
bar and coin in the world; and in monetary terms, one is talking about
less than $2 billion worth of bullion at today's price of gold.
GATA discussion group member David Kieffer McGarvey has emailed us that
85-90 million dollars of coin sales per month, at the present rate of
sale, seems to be a rather small amount considering the size and breadth
of today's investment scene.

David writes. "It would be nice if GATA could advocate something
positive for the gold investment scene, above and beyond its lawsuit. It
could advocate equal and fair treatment of gold as an investment. To
this end I point to a scheme recently introduced in India, and mentioned
in George Milling-Stanley's Weekly Gold Market Commentary (Feb 22-Feb

"'The main feature with regard to gold was the introduction of a gold
deposit scheme, whereby selected banks will be permitted to accept gold
deposits and issue interest-bearing certificates or bonds which, on
maturity, can be redeemed in gold. To encourage the scheme, it is
proposed that gold placed on deposit will be exempt from wealth tax,
that interest earned on the bonds will be free of income tax and that
gains made through either trading or redeeming the bonds will be
exempt from capital gains tax. Previous attempts by India to mobilise
private holdings of gold through bond schemes have met with only limited
success. '"

"A scheme like this," writes David, "if proposed in the West, would do a
lot to level the investment playing field."

- - - - - -


Yesterday's Financial Times in London gave a good account of the Indian
gold deposit scheme. Here it is in full:

A gold deposit scheme outlined in the latest Indian budget could bring
into the banking system "idle" gold of up to 100 tonnes a year,
according to early industry estimates.

Under the proposed Gold Deposit Scheme, selected banks would be
permitted for the first time to accept gold deposits - mostly jewellery
and bullion held by individuals as a store of wealth - against which
they would issue interest-bearing bonds. On maturity, the bonds could be
redeemed for the weight of gold initially deposited.

Yashwant Sinha, finance minister, announced the scheme in last week's
budget as a measure to help cut India's high gold imports, with a
broader eye on the rising pressure facing the country's external
accounts. India is the world's biggest buyer of gold, officially
importing 614m tonnes last year.

The new scheme is also considered likely to herald further
sophistication in India's domestic gold markets, encouraging banks to
lend the metal and develop gold hedging instruments.

Pravinshankar Pandya, chairman of the Gems & Jewellery Export Promotion
Council in Bombay, said he believed the scheme could reap up to 100
tonnes of gold a year, against current annual demand of more than 800
tonnes. Gold demand, including both imports and recycled gold, rose 11
per cent last year.

Mr Sinha gave no details of likely interest rates or tenures for the
proposed bonds, but said they would be exempt from tax both on interest
and capital gains.

He also made no estimate as to how much gold the scheme might glean from
Indians, who for generations have cherished the metal as a safe,
portable store of wealth - notably in rural areas. He only said he was
confident of bringing large quantities of such gold into the system
through the banks. "Domestic demand, the demand from jewellers, this is
something we could meet out of a gold stockpile that we'll be able to
create," he said after the budget.

Industry associations said the success of the scheme would depend
entirely on the bonds' interest rates and the success of banks marketing
the scheme. Many Indians, particularly in rural areas, hold gold and
jewellery out of suspicion of financial institutions.

There is no accurate figure on the amount of gold in the country, but
estimates range between 8,000 and 15,000 tonnes.

By way of some precedent, a one-off gold bond scheme launched by the
Reserve Bank of India, the central bank, in 1993 attracted 41 tonnes of
gold, based on a five-year bond bearing 2 per cent interest.
However, the new scheme would differ by offering a continuous deposit
service, while also forcing banks to earn from the recovered gold enough
to service the interest payments.

The latter is seen as encouraging gold lending to jewellery makers and
eventually to the creation of hedging instruments and other gold-based
financial products.
India's gold and silver imports surged in official accounts from $936m
during the first nine months of the last fiscal year to $3.3bn between
April and November 1998, chiefly resulting from the government's
decision in November 1997 to permit 11 financial institutions legally to
import and retail the metal.

However, concern over surging gold imports led the government to raise
gold duties in January, a move criticised for reviving the smuggling of
gold - the very thing the earlier decision to allow banks to import the
metal was designed to curb.

World Gold Council officials in Bombay say the rise in duty has already
led to shrinking imports in gold centres such as Ahmedabad, western
India, noting also a surge in imports to Nepal, where the duty is lower.

The Financial Times,
March 3, 1999