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| India taps into domestic gold stocks |
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India is set to begin trading on its new gold bullion market in an attempt to mobilise the thousands of tonnes of the precious metal that the country's households keep hidden under their beds as savings. The National Spot Exchange, controlled by Indian market company Financial Technologies, will begin offering contracts for domestic gold bullion, ranging in size from 8gr to 1kg. "Though India has a huge household stock of about 20,000 to 25,000 tonnes of gold, there was no single market available where this could be sold," said Anjani Sinha, managing director and chief executive officer of the National Spot Exchange. For millennia, Indian households have saved in gold, making the subcontinent the world's largest consumer of the metal, importing nearly 800m tonnes a year, or 20 per cent of global demand. But while there is a modern market for the import of bullion, once it enters the system in India, there is no transparent exchange for its resale and conversion back into bullion. In general, Indians have to sell their gold to jewellers, who for a commission of between 5 and 10 per cent take it to refiners to melt down and resell. "You don't know what is the purity, you don't know what the jeweller is going to pay to you... and the price realisation is not good because there is no electronic or nationalised market for selling gold," Sinha said. Sinha said the Indian Bullion Market Association would operate along the lines of its counterpart in London. Sellers will take their gold to approved refineries which melt it down and turn it into gold bars of international standard "995" purity. They then place the gold in an approved vault and issue a certificate to the consumer who can trade the gold on the National Spot Exchange through an approved broker. Sinha said the total commission paid by the consumer would amount to about 50 basis points. The scheme is also aimed at lessening India's dependence on imports of gold by creating a more active market in its domestic stock of the metal. The company anticipates that initial trade will be in the range of 5-10kg a day of gold, building up as the idea gains popularity. The initiative on gold is one of a number at the National Spot Exchange aimed at bringing many of India's ancient trading businesses into the electronic age. The group has also begun introducing electronic spot trading for agricultural commodities in some of the country's least developed states, such as Bihar in the north-east. Rather than sell to the traditional middlemen at village markets, who skim off huge profits, farmers can take their produce to approved warehouses owned by the spot exchange's affiliate, the National Bulk Handling Corporation, where it is graded and stored. - FT Related Articles:
Last update: 29-06-2009 22:20
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