Daily Archives: December 19, 2016

Silver Prices Rising Due To Shady Transactions in India

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As in many other undeveloped countries, black money is abundant on every single level of the Indian economy. This is a matter that has attracted nationwide attention because it seems to be slowing economic growth. The national government has declared a war on this issue, trying to eradicate the flow of this money.

Measure after measure, people involved in these illegal activities are looking different ways to back up their wealth and transform their black money into “white”. According to a report from The New Indian Express, this is intensively happening in Salem City, in the state of Tamil Nadu.

How Is Silver Gaining From This?

In the constant quest of transforming black money, people involved in these activities are naturally attracted to precious metal. At first, most people were buying all the gold they could with their black money, but now they are more attracted to silver for obvious reasons.

“After demonetization, most of the black money holders in and around Salem bought gold bars. But, after information spread that government will next focus on gold sales, they are afraid that the gold rate will come down drastically in the coming days,” said a silver anklet shop owner that was interviewed for the news report.

Salem City has abundance in silver commerce, mainly in form of anklets. This is leading black money holders in the region to visit the city in order to spend their wealth and backing it up with a safe metal.

Legal Actions

The national government is committed to search and prosecute those people who are involved with black money, arguing the threat they suppose to the whole economy. In fact, the population that falls in this shady sector were buying gold by the ton before official statements.

“There have been reports from around the country that people were buying gold, often at a premium, with the demonetized currencies. Following this, the Central government responded saying they will track jewelers and purchases to crack down on black money holders,” says the article.

It is logical to think that this announcement affected the gold market and redirected black money holders towards silver bars, anklets, and other presentations that would result useful for backing up their wealth, enjoying a degree of liquidity which is much easier to manage than if they were to buy gold bullion or jewellery, which is of a much higher value per item.

Global Impact

There is no way to know if black money holders have the capacity to influence the global market of silver and gold. It’s true that this population handles a massive amount of money, also involving illegal businesses. But from this to pushing forward an international market, there is a lot to consider.

India represents the second global consumer of the yellow metal. Now those black money holders are afraid of putting their bet on physical gold, this could actually affect the market. This would be decreasing the national demand, not only in Salem City, where silver is more popular than anything else.

Nevertheless, India’s rural finances are stronger than ever, thanks to the good monsoon. This means that gold demand will continue to increase, because farmers have limited access to the banking system, pushing them to invest in metals.