Only a few days ago, Andhra Pradesh Chief Minister Chandrababu Naidu had advocated the demonetization of the 500-rupee note.
Naidu has been a strong advocate of banning all big-value notes to prevent Black Money for many years, even before the Demonetization.
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Surprisingly, Finance Minister Nirmala Sitharaman, the other day, gave a Statement that the Government is prioritizing the Small denomination notes. This is when asked about the future of the 500 note at a Seminar.
After the Finance Minister’s statement, there are speculations that Chandrababu Naidu, the Kingmaker in the current Government, may not have given that statement without any insider information.
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So what happens to the Black Money if the Bigger Denomination Notes are flushed out?
It is impractical to store Black money in bundles of 100s and 200s. So, where is that money going to be parked?
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In India, there is no election without Black Money.
Politicians spend Black Money in the Elections and earn the same after the Elections. So, Black Money is an integral part of the Indian System and is very difficult to get rid of.
So, they will definitely look for Options.
Real Estate is always a Safe Haven for parking Black Money. But then, Real Estate assets are not easy to transact and are under the constant vigil of the Government.
Also, the Government value of Land is always less than the Market Value, which means High Risk.
So the next safe parking place is going to be Gold.
It is easy to hoard Black Money in Gold. It is even better than hoarding bundles of cash in 500s. Even though it is a bit difficult to transact, it is still a lot better than Real Estate.
So, Gold will shoot through the roof if the 500 Note is shown the door from the system.
Already, the Gold is trading at record highs. The 10 Gram 24K Gold almost touched One Lakh, and so, it may become unaffordable to the middle class if the Government bans the 500 Rupee Note.
According to a Survey, Consumption of gold in Indian households is the highest among the middle-income group (those with annual income between Rs 2 lakh and Rs 10 lakh). They consume an average of 56 per cent of the total volume of the yellow metal sold in the country in the last five years.
