September 14th, 2009
04:18 AM GMT
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MUMBAI, India (CNN) – Whenever my mother was unsure about what to gift someone for a birthday, wedding, anniversary or festival, my grandmother would say to her, “give gold.”

“It will last a life time and everyone appreciates it,” she would say.

Even today, my parents often gift gold on a special occasion. It’s part and parcel of Indian culture. Indians love wearing gold, giving gold, receiving gold.

Turns out we love hoarding it too. At least 20 to 25 thousand tons of gold is stored in households across India. With gold prices currently around $1005 an ounce that means around $807.7 billion is stashed away deep inside cupboards, under mattresses and at the back of safes in India.

India is the world’s largest consumer of gold and also a net importer of the precious metal. Problem is, once gold enters India, there is no transparent, standardized market for the resale of gold back into bullion. Gold sellers are at the mercy of middlemen: Anyone wanting to sell gold have to take a necklace or chain to a scrap jeweler. He would check it, weigh it and come up with a price for it. He’d charge a hefty commission, take it to a refinery and melt it.

Anjani Sinha is asking gold sellers to ignore the middlemen and follow him instead. He runs the National Spot Exchange – which has created the first transparent, standardized platform for gold trade in India.

Under this system, anyone with gold to sell can go directly to an approved refinery where gold is melted into bars or coins of an international standard. The seller can either take the bar home or leave it in a vault. He is given a receipt, which he can sell via an approved broker. The idea is to make trading in gold as easy as trading in stocks and shares.

If sellers start bringing some of their gold out from under mattresses and into the spot trading market, it has the potential to revolutionize the gold market – and make a massive impact on the Indian economy.

Si Kannan of Kotak Commodity Services walks us through some of the numbers: At current prices, even if 1% of India’s household gold enters the market, it would mean an extra $24 billion circulating through the domestic economy.

This would reduce India’s dependence on imports, pave the way for investment in domestic refineries, and increase employment opportunities.

The biggest challenge now though is convincing people to go to a refiner, not a scrap jeweler, when they want to sell gold. To be honest, I can’t see anyone from my grandmother’s generation going to a refiner instead of a family jeweler she has known for ages. Some habits are hard to break.



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