NEW DELHI: The gold monetisation scheme announced by the government may bring Indian gold prices on par with international gold prices. Currently, Indian gold sells at a premium of $50-60 to international gold prices.
“The marginal dip in prices expected in the wake of the scheme could fuel fresh purchases of the yellow metal,” says Hareesh V, Research Head, Geofin Comtrade. Thus, the gold monetisation scheme is viewed as positive by the market, although certain issues need to be ironed out.
Gold prices in India attract a premium as there is no local production of the precious metal in the country. Internationally, gold has been trading at US $1203 per troy ounce. In India, the price of gold has been ruling at Rs 27,092 per 10 gm in MCX Futures as of Monday.
India is one of the largest consumers of gold in the word. In many families in India, gold purchases are almost mandatory on occasions like marriages or festivals like Diwali and Akshaya Trithiya. Besides, gold has always been viewed as a ‘safe investment’ option in India. In order to meet this persistent demand for the yellow metal, the country imports about 800-900 tonne of gold. The government has been concerned over the widening of the current account deficit (CAD). In order to contain the CAD, the government has taken several steps to reduce the import of gold over the years.
The gold monetisation scheme is one more effort by the government to bring into circulation the gold lying with the general public. The Indian public is estimated to have about 20,000 tonne of gold which could be in the form of gold jewellery or biscuits.
Most of this gold is lying idle in lockers. The monetisation scheme is expected to bring this gold back into circulation. Once the gold lying with the public is monetised, it is expected to reduce the country’s dependence on imported gold.
“Use of local gold would result in reduction in prices as gold attracts a 10% import duty currently,” says Hareesh. The reduction in prices could act as an incentive for fresh purchases of gold by those who were waiting for a correction in gold prices.
For those who are looking forward to monetising their gold, the advantage is that they will earn an interest income on the gold that is tax-free. Banks are likely to offer interest in the range of 1-2% or at best 3% or so, feel informed sources. “While the interest rate seems very low, but bear in mind that the gold was not earning anything so far,” says Hareesh.
The fact that the monetised gold would earn interest, would lead to an increase in the purchasing power too, that could further fuel purchases, said sources. Besides, the gold depositors would also save the fees paid towards locker charges for safety of the gold.
The proposed gold monetisation scheme envisages that customers can deposit the gold with banks and earn an interest on the same. At the time of redemption, customers have the option of either choosing gold or cash. While the minimum amount of gold that can be deposited is 30 gm, there is no upper limit announced as yet.
