RBI mulling financial products to check gold imports
MDT/PTI 20 September 2012

The central bank is finding different ways of allowing people to take advantage of gold price movement without physically buying

New Delhi: Concerned over rising gold imports, the Reserve Bank of India (RBI) has said it is planning to come out with financial products on the lines of gold Exchange Traded Funds (ETFs) to give options to investors to take advantage of price movement in the precious metal, reports PTI.

 

"...We can provide people with financial attraction of gold without them having physically own it. That would in a sense reduce the pressure on imports. So ETFs are one such," RBI Deputy Governor Subir Gokarn told reporters on the sidelines of a PHD Chamber event.

 

Exchange Traded Funds (ETFs) allow people to buy or sell gold without physically holding it.

 

"We are looking at expanding scope (of products like gold ETFs) essentially sort of bank related products ...Essentially finding different ways of allowing people to take advantage of gold price movement but not physically buying it," Gokarn said.

 

In the 2011-12 fiscal, India's gold imports stood at %60 billion and the quantum of import was 1,067 tonnes.

 

In the April-June quarter of the current fiscal, however, gold imports had contracted by 18.4% year-on-year to Rs 71,912 crore $13 billion). Gold imports into the country have risen considerably in the last 3-4 years.

 

"We think that it (rise in import) has been driven by at least to some extent by the fact that people are looking at gold as a substitute for financial investments. That is reflected in trend we are seeing in financial saving by household," he said, adding that RBI is waiting for the report of the working group to deal with the problem of rising gold import.

 

Rising gold import has pushed the current account deficit (CAD) to a record high of 4.2% in last fiscal.

Comments
Nilesh KAMERKAR
1 decade ago
The current buying interest in Gold seems purely speculative in nature.
People are buying gold because the price is going up; the price goes up because more people are buying (or people are buying more). This trend of rising gold prices shall not only stop but will also crash someday . . . though it is impossible to forecast how far and till when Gold prices will rise, before they crash (crash is imminent, as no asset prices can remain high forever) - Irrational over-valuation can remain for a long time thereby causing a false sense of price stability amongst the buyers.
Why should RBI encourage or facilitate buying gold? Rather RBI should ban the selling of gold by banks (but, the way banks operate is, they will sell whatever that can be sold for a profit)
Whenever the price reversal happens, who will buy when people rush to sell and at what price? – Not many are keen to think about this possibility now.
M G WARRIER
Replied to Nilesh KAMERKAR comment 1 decade ago
Compared to stock market prices gold prices have remained stable for so long. There is no reason to speculate a crash. The effort here is not to encourage more import or ‘additional’ purchases by households, but to bring existing domestic gold stock to mainstream and reduce the appetite for accumulating gold jewellery stock by offering alternative ‘gold’ routes.

Nilesh KAMERKAR
Replied to M G WARRIER comment 1 decade ago
Sir,
The question that begs to be answered is not whether how long gold prices have remained stable; but whether gold prices are rational. For if they are not – then gold prices will surely fall.
In case of equities, there are 7 – 8 different formulas for evaluating the attractiveness of an investment. How should any investor evaluate gold as an investment? - Only argument in favour of Gold being the steadily rising prices. When an investment becomes expensive people tend to like it even more rather than become cautious / skeptical about it. The substantial rise in gold prices may well be a cause of concern rather than a vindication of the price being normal.
Whenever speculative frenzy picks there is little that can be done to control it as the bubble grows bigger and bigger . . . till it bursts one day.
RBI ‘s measure may not encourage more imports but would most certainly offer an alternative , an easy option for participating in gold at such historically high prices.
M G WARRIER
Replied to Nilesh KAMERKAR comment 1 decade ago
Compared to stock market prices gold prices have remained stable for so long. There is no reason to speculate a crash. The effort here is not to encourage more import or ‘additional’ purchases by households, but to bring existing domestic gold stock to mainstream and reduce the appetite for accumulating gold jewellery stock by offering alternative ‘gold’ routes.

M G WARRIER
1 decade ago
Import and accumulation of huge quantities of gold in the form of jewellery, in addition to the impact on forex management, have other social implications like under-utilisation of financial resources for productive uses and pledging of assets for raising funds which ultimately helps only the money lender in whatever attire he surfaces. In this context the present move by RBI to introduce gold-backed financial instruments deserves praise. In the absence of a system to check purity easily, when gold is accumulated in ornament form, a likelihood of individuals/families getting perennially ‘attached’ to a particular jewellery group cannot be ruled out. This is a possibility, as jewellery shops are yet to universally accept the current hall marking arrangement when it comes to gold bought from outside.
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