Chennai: The government will allow banks to trade in gold, hold, buy, sell, hedge and mine gold. This will facilitate the intervention of banks in the development of gold as an asset class.

By current standards, banks can only be a deposit or channel agent in importing bullion for jewelers and exporters. They route gold from international investment banks like Nova Scotia and deliver it to trade, without taking the risk of owning the metal.

“Enabling bullion banking will be an important step towards developing gold infrastructure in India and establishing gold as an asset class. Once bullion banking is permitted, banks can manage bullion risk, hold a gold account, hedge and actively participate in the proposed spot gold exchange, ”said PR Somasundaram, MD, India, World Gold Council.

According to him, one of the main obstacles to the successful implementation of the gold monetization program is the inability of banks to take the risk of holding gold. The bullion bank will not only promote the gold monetization program, it will also increase the offered bullion spot exchange and support better price discovery.

The Niti Aayog, in its recommendations on gold policy, also called on the RBI to ensure greater involvement of banks to enter the gold sector for better price discovery and better availability of gold. gold. International suppliers sell gold to Indian banks at a price that includes a premium above the LBMA price. In addition, banks charge a premium in the range of $ 2.2 to $ 2.3 per ounce. In markets such as the United Arab Emirates, gold is purchased at a price lower than the prices quoted by the LBMA.

Banks can have better margins by managing gold themselves. Most international investment banks are profitable entities. For banks to get into gold banking, they need a clearing system, a metal accounting system and risk management systems, Somasundaram said. It is not necessary to create separate bullion banks; instead, some banks may have investment offices to handle the commodity.

“In the next two to three months, we expect an announcement in this regard. Work is already underway and the modalities required for their implementation are being discussed and finalized, ”he added.

…