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.

soundoff (12 Responses)
  1. Abhijit Roy

    I think the refiner idea is brilliant. The younger crowd who have inherited their grandmother's jewellery would certainly find this scheme very attractive provided it has some official gurantees. One also needs to prove that trading in gold is indeed easy and risk free compared with the scrap dealer.
    Despite promises, gold trading in India is difficult. One can buy a Swiss bar from ICICI bank but they will not repurchase it. Other jewellers are also reluctant to buy it and one can only exchange it for another piece of jewellery and not cash. This makes investment in gold illiquid.

    September 14, 2009 at 8:29 am |
  2. KappY

    This reminds me of "India – a golden bird"
    (revisit from the Indian impression of last centuries)

    September 14, 2009 at 8:58 am |
  3. Tyler Purviance

    I believe Ms. Kapur, in the spirit of euphemistic journalism commonly practiced here in India, has only hinted at an essential aspect of India's love of gold – tax evasion. This spot-exchange is not a new and novel service in India – it's merely an more expensive, less competitive model of the status quo.

    Unctuous "Middle-men" exist in India and will continue to charge "hefty commissions" because Indian's would prefer not to pay taxes. A transparent spot exchange would make these assets taxable by the government something almost no one in India wants. The age old Indian art of hiding money under mattresses exists because the middleman might charge 10% while the government could charge 30%.

    It might be interesting to imagine the potential ramification to the price of Gold should the Indian gold industry every become fully transparent – but I'm not counting on that happening anytime soon.

    September 14, 2009 at 10:50 am |
  4. santosh

    The fact of the matter is that the Indians would wake up only to advertisements, no company has ever advertised about buy back of gold and payment for full value of gold content, no cricketer has been roped in to advertise on this market, no company of repute has come out. Reliance, either Anil or Mukesh can come out and their reputation will definitely bring out the gold from the hideouts. that is the only way. Small companies or individuals dont matter to the indians as they have always been cheated by the business men, so only companies of repute can create this change and surely grandmothers and grand fathers would also trus the REliance brand

    September 14, 2009 at 10:57 am |
  5. Per Holmlund

    Sell gold???

    Xtra 03/09/2009
    Do you see it coming? Did you see it coming? Not a run for cover, YET!
    New demand created by BRIC, the 100 of millions of new rich, the ageing effect in west, 60, 70+ years gifts plus silver, gold, diamond marriages and the zero interests. And don’t forget the effect on gold companies income statements. Profits will explode if/when gold hits 1500. Or did I hear 2000, 2500…

    The Pessimist is waiting for a Double Top The Optimist is waiting for a Head&Shoulder reversal buy, a historical brake of the 1000 level and a climax with a bubble!

    September 14, 2009 at 1:02 pm |
  6. max

    most ppl dont like to sell gold in india.. even if they are short of moeny, they 'borrow' money, keeping the gold as deposit.. so they can pay back and get the gold.. main reason for gold is – its mandatory for women to wear it during wedding. but these days, women dont care for it much(atleast the ones in cities)..

    September 14, 2009 at 2:00 pm |
  7. Goel

    Good analysis, Tyler.
    As it happens in India and equally elsewhere, the vested interests always find a way to make the same or more profit in the new system. The middleman will also evolve new ways. However, I think the article here intends to report what and how a new technology and market channel may change the operations – of course if the consumer wants to embrace that change for their benefit. The subject of tax evasion and the government's poor will to curb tax evasion are here to stay till people wake up – if ever.

    September 14, 2009 at 4:01 pm |
  8. PlaycleGype

    Very Recently, there has been a great deal of inquiries by the
    American FTC against bloggers and website promoters
    for not stating advertising revenue, or existing
    relationships with ad networks.

    What are your personal ideas about how this could effect
    the blog community?

    November 4, 2009 at 7:17 pm |
  9. DuffMinster

    I've been told that India was one of the official storage sites for IMF gold and that they amount they held prior to the purchase was in the neighborhood of 200 Tons.

    The Gold Anti Trust Action Committee (GATA) have been speaking to the subject of central bank and by extension IMF gold swap and lease operations that go unreported in the standard gold inventory reports.

    Is it possible that this purchase was due to that gold having been leased or swapped or as some say "double sold?"

    This subject is deeply important as the world is suffering from a case of spending far too much. And this is the precise reason that the US under Nixon took the world off the Gold Standard. So they could spend way too much.

    December 9, 2009 at 1:18 am |
  10. Chui

    Unfortunately the other side of the coin in this case is that once too often, the indian made gold jewellery is about 10% gold and mixed with other yellow glittering mixture of metals. The worst of it is that over 50% of the country is illiterate, misled and ignorant, who have always been cheated and swindled by the gold smiths, the zimidars land lords, corrupt to the hilt politicians and the money men.

    March 28, 2010 at 5:28 pm |
  11. Anil

    HABITS-This is much more than a habit. This is a security for rainy days. Just because of this habit the older generation has something to hand over to next generation. The article seems to advocate for youth who wants to sell the land,farming land,gold and other securities (real securities in traditional terms) to enjoy that money by spending or investing in some dodgy company like great PONZI or MADOFF or should I say SATYAM.
    Oh... definately KOTAK wants some of it in market,theres no doubt about that.

    June 24, 2010 at 4:51 am |
  12. icon download

    Unequivocally, excellent answer


    September 22, 2012 at 11:53 pm |

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