Gold trading in the country is set to evolve in a much more orderly fashion after the Securities and Exchange Board of India (Sebi) approved the framework for the establishment of gold exchanges in the country.
This move will be of great benefit to retail buyers of gold, as the trade would bring the transparency and assurance of purity essential to markets across the country.
It would also allow the implementation of uniform gold rates across India. Investment in gold can also be expected to increase as consumers receive quality assurance.
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Although mandatory hallmarking is already in place, trading with their guarantees would give consumers much more confidence in the purity of the gold they buy.
Once the gold exchange was launched, India would join the exclusive club of countries with gold exchanges such as the UK, China and Turkey.
In all of these countries, the gold exchanges are cited as responsible for the increase in retail purchases of the yellow metal as well as better price discovery in the retail market.
According to Sebi’s framework, the instrument representing gold is to be referred to as an “electronic gold receipt” (EGR), and would have trading, clearing and settlement functions like stocks and securities.
This means that investors need not fear any default on the part of the traders since every trade would be guaranteed.
In addition, the ease of trading would also improve as the EGR could be traded like stocks in dematerialized forms.
It takes a maximum of a day or two to settle transactions depending on the settlement cycle to be set by the regulator.
These positive policies are sure to boost demand for gold, propelling the country to the top of gold-consuming nations.
It is important to note here that India is now the second largest consumer of gold in the world. Official data shows that 800 to 900 tons of gold are imported each year.
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However, as the country continues to track London Bullion Market prices, gold prices remain higher.
The proposed gold exchanges could lead to an increase in domestic consumption of gold, as it would eventually lead to lower prices as the country moves from being a “price taker” to being a “price-maker” on the market. national gold market.
In addition, the gold exchange would level out different prices in various parts of the country. The price difference is unfair to customers since the rates are currently set internationally for gold.
Second, the customs duties are also the same. In addition, GST rates are also uniform and applicable to all states.
Therefore, the existence of different rates for the same grade of gold in different parts of the country is out of control.
In addition to providing transparency, the regulator should also prevent unauthorized manufacture of jewelry to achieve the underlying goals of the gold exchanges. Along with these positive steps, gold smuggling must also be curbed by lowering tariffs.
Gold has a profound impact on the value of global currencies. It is a truism that one of the reasons the USD remains powerful internationally is the huge gold reserves that the US government enjoys.
If the Indian government can come up with a plan to use the unproductive gold stock for the benefit of household investors as well as the nation, it would do the Indian currency good.
According to the World Gold Council, household gold stocks in India are over 25,000 tonnes, while the Reserve Bank of India (RBI) is much less.
As the steps to set up gold exchanges bear fruit, gold in India would get its rightful moments in the sun as soon as possible.
(The author is president of Malabar Gold & Diamonds)