India Develops Creative Solution to Realizing Value of Personal Gold Holdings

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Precious Metals

Considering India is the largest consumer of gold in the world, making up some 20% of the whole, it has a remarkably underdeveloped domestic market. Possibly this is because nearly 3/4 of the 800 tons a year that is imported goes into the highly illiquid jewelry market. In an effort to counter this situation, the India National Exchange has launched a series of new contracts allowing the trade in gold bars from 100 grams (0.22lbs) to 1 kg (2.205lbs). At present Indians wanting to realize the value of personal jewelery holdings have to sell their gold to jewelers, who for a commission of between 5 and 10% take it to refiners to melt down and resell. You don’t know what is the purity, you don’t know what the jeweler is going to pay to you … and the price realization is not good because there is no electronic or nationalized market for selling gold said the MD Anjani Singh to Bloomberg. Currently so much recycled gold is not of internationally certified standards and hence trades at a significant discount to world prices.

The new contracts are designed for individuals to take their gold to approved refiners who will turn it into bars of international 995 purity at a cost of just 75 rupees ($1.57) per 100 gms. The refiner then places the gold in an approved vault and issues a certificate to the consumer who can trade the gold on the National Spot Exchange through an approved broker according to the FT. The exchange hopes this will allow access to the estimated 25,000 metric tons of gold locked away in family vaults and dramatically increase the 150-200 tons that are currently recycled annually. It  could also stimulate the commercial recycling of gold from electronics which is often a small scale enterprise in India.

It raises the question whether similar contracts in the west would prove viable. One issue could be the cost of refining, according to Anil Kansara of Gujarat Gold Centre quoted in the Economic Times, In India, the cost of recycling 10 gm of gold comes to Rs 30, while in Switzerland it comes to Rs 300. May be India will become a center for regional refining if import/export restrictions are simplified ” yet another outsourcing service India has to offer the world?

–Stuart Burns

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