IBMA is creating market linkage between household stock and domestic demand by notifying the norms for “India Good delivery bars”, granting approval to local gold refineries, which meet the eligibility criteria required for producing IBMA Good delivery bars. It provides an opportunity to the investors to convert their household stock of old jewellary into IBMA good delivery bars/ coins and to sell the same through the transparent electronic spot market set up by National Spot Exchange. The impact cost for the entire operation is less than 1 % and so, this mechanism provides immense benefits to both sides of the market. On one hand, the domestic investors realize the best possible price for his old gold through transparent pan India pricing mechanism and on the other hand, the buyer gets gold at a lower price. This will create a powerful Indian market system for bullion, which will be largely based on Indian demand and supply factors. This will also create a unified common Indian market for gold and Silver.

A significant factor relating to Indian bullion trade is that it is largely driven by individual investors’ sentiment. In general, higher the price lower is the import and lower the price, higher is the import. Another factor influencing Indian market is that higher prices induce domestic investors to bring out scrap gold/ old jewellary to the market to sell. Therefore, at higher price levels, on one side domestic demand for gold shrinks, while on the other recycled old jewellary meets major portion of domestic demand. The result is substantial reduction in Gold import. Given the continuously rising prices of gold in the international market, Indian bullion market is on the verge of a paradigm shift, which is just round the corner. India, being the largest hoarder of Gold in household sector, will start influencing global price trends, once an organized market linkage between domestic demand and supply of gold is transparently developed. And the institution, which is able to create such organized linkage, will exert a dominant role in Indian bullion trade and industry. IBMA is poised to be the pioneer institution in this direction.

Given the huge stock of gold in India and its major share in gold import, if the Government allows free import and export of gold in this country, India will emerge as the major influencing factor in global price discovery process.

In a recent interview you had said that silver is gaining strength in Indian rural markets thanks to rising gold prices. How much of the present appreciation in silver is due to industrial demand and how much of it due to increased buying by Indian consumers for jewellery purposes? Other than gold prices, what factors have turned favourable for silver jewellery?

It is a fact that demand for silver in rural India has picked up in the form of jewellary due to spurt in Gold prices. The reason is affordability, which influences their buying decision. Mostly, people in rural India have pre determined budget for buying jewellary on special occasions, such as marriages, etc. This leads to shifting of demand from gols to silver, when the price of gold goes up, if silver prices lag behind.

Price is dependent upon aggregate demand and not demand from any specific sector. Still, the recent spurt in silver demand is mostly investment demand and not industrial demand.

Do you think investments in platinum and diamonds would see an increase due to rising gold prices?
Platinum and diamonds are never considered to be competitor to Gold. The only competitor to gold is silver. Demand for diamond has recently increased, but in my opinion, there are two reasons: (a) diamond trade has become relatively more transparent, compared to earlier years due to wider acceptatbility of certificatipon and standardization; and (b) wider application of diamond in fashion jewellary. But, I do not think increasing prices of gold has got anything to do with demand for diamond.

Do you expect the bull run in gold prices to sustain as some factors seem favourable including dollar weakness and persistant doubts about economic recovery?
Fundamentally, price rise in gold is linked to US economy, which is still not in good shape, resulting into weakening of dollar against other international currencies. The result is price rise in gold in dollar terms. Gold is above its historical peak, so there could be correction in prices, but such corrections would be more technical in nature.

How favourably has the Indian Government considered the demand for abolition of customs duty on gold to increase gold imports?
We expect some announcement on this line in the ensuing budget. There has been sharp decline in import, hence the total collection of import duty is less, comparted to earlier years. This calls for a reduction in import duty. The Government has shown its commitment to open up this market, by enabling star trading houses to import directly. But, need of the hour is to rationalize duty structure, to reduce import duty on gold, to reduce import duty on Gold ore, to open up the markets further and so on.

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