An influential group of Indian gold traders and jewellers are to launch the country’s first gold trading exchange in an attempt to bring transparency to the market for the precious metal in the world’s second largest consumer.
The Mumbai-based India Bullion and Jewellers Association (IBJA) is reportedly talking with industry officials about launching the exchange next year.
A dedicated physical gold exchange could lead to standard gold pricing in India, and could also bring transparency to a market which can involve large cash transactions.
“We are planning to launch the exchange in six months,” Ketan Shroff, an IBJA spokesman told Reuters.
“Discussions are going on regarding its structure and ownership.”
The exchange, which will start with two to three delivery centres for gold and silver, will help the government to monitor gold trade, he said.
Last week, India’s economic affairs secretary Shaktikanta Das floated the idea of setting up a national gold exchange.
India’s push for an exchange follows the gold monetisation and sovereign bond schemes launched last month designed to mobilise the country’s gold hoard and reduce imports of the precious metal which are exacerbating the trade deficit.
A physical exchange is likely to mean jewellers, retailers, refiners and banks can trade over a regulated platform.
The Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX) offer gold futures contracts in India, but there is no platform for physical trade.
“There is a need for an exchange that will cater to small jewellers’ demand,” said Kumar Jain, vice president of the Mumbai Jewellers Association.
“Sometimes we need to pay hefty premiums. That won’t happen as demand-supply will become transparent on exchange platform.”
China, the top gold consumer, runs such a bourse, where all domestic production and imported gold has to be bought and sold.
Shroff said IBJA was looking for partners to launch the Indian exchange as an anchor investor, or promoter, cannot hold more than a 26 percent stake in a commodity exchange.
Banks, the main importers of gold, would also be interested in participating. At the moment, banks are not allowed to trade on Indian commodity exchanges offering futures contracts.
“The government should allow banks to participate in a physical exchange,” said a bullion dealer with a private bank.
“Without their presence, liquidity will be limited.”
The news comes a day after news emerged that one of the country’s most popular temples was preparing to make the first substantial contribution to Prime Minister Narendra Modi’s plan to recycle tonnes of idle bullion to reduce imports and the deficit.
Mumbai’s two-hundred-year old Shree Siddhivinayak temple, devoted to the Hindu elephant-headed god Ganesha, is considering depositing some of its 160 kilogrammes (kg) of gold with banks.
The deposit would be a big boost for the gold monetisation scheme that has attracted only one kg in its first month.
According to temple officials, the plan calls for the melting of jewellery with lower purity to make bars and deposit those bars.
A final decision will be announced later this month.
Modi launched the scheme to tap a pool of over 20,000 tonnes of gold held by Indian households and temples.
The idea is to recycle the idle gold to meet fresh demand and thus reduce bullion imports, the second biggest expense on India’s import bill after oil.
India’s temples have collected billions of dollars in jewellery, bars and coins over the centuries, hidden securely in vaults.
Modi wants temples to deposit some of this with banks, in return for interest and cash at redemption.
The government would melt the gold and loan it to jewellers. The monetisation scheme has so far met with a tepid response.
Devotees of Siddhivinayak temple, which is often frequented by Bollywood stars, mostly seemed to support the decision.
Financially the new scheme makes for a good investment.
While previous such schemes have paid out interest around 1 percent, the latest offers 2.5 percent.