India’s government was not finished creating problems. On November 11, excise tax authorities sent notices to 600 jewelers across the country asking for details about their inventories and their transactions from Nov. 7-10. Merchants were asked to provide details about the quantity and value of gold purchased from customers and the quantity and price of gold sold to other customers. The government reserved the option to then request customer details on any larger transactions.

Once the news was disseminated that the tax authorities might be checking on private citizens’ gold purchases, demand for this metal almost totally stopped. This development heightened fears that the government might try some kind of gold redemption or confiscation program. Such concerns were becoming so rampant that last week the government went out of its way to deny that any exchange or confiscation program would happen.

Throughout this fiasco, the government’s credibility has suffered. Such a reassurance that private gold holdings were safe did not have the intended effect. Instead, what has happened is that people are now focusing on buying physical silver. Since India is also one of the world’s largest silver consuming nations, I anticipate that this bump in demand will lead to significantly higher silver prices by the end of January.