Gold

Project Outline

1. Total value of gold held in the country – how much is by govt, how much by private individuals, how much as jewelry vs. metal
2. Annual gold imports – value and quantity
3. Existing and proposed schemes by the banks, government, RBI for bringing the gold into the banking system, i.e. accepting gold deposits for interest, selling gold certificates instead of actual metal.

Research Information

GOLD PRICE 2002 – 2007:

Chart at: http://preciousmetalzone.blogspot.com/2007/11/gold-price-2002-2007-5-year-chart.html

GOLD HOLDINGS:

The gold holdings help India to have a suitable safety mechanism against a reversal of economic fortunes like in the far-east.

http://www.expressindia.com/news/fe/daily/19980411/10155044.html

I By Private Individuals:

Indian households own about 15,000 tones of gold, accounting for about 10% of the worldwide stock. At current market values, we estimate that gold accounts for about 10–15% of the Indian household balance sheet. Gold holding among Indian households at current market value is about 2.5 times the current equity stock holding of US$80 billion. While the share of gold in household savings declined during 2001–2003 to 5%, we estimate that this has risen again back to 6.5% during the quarter ended March 2005.

Full article: http://www.thestalwart.com/the_stalwart/2005/07/some_interestin.html

In 2004, it was estimated that the Indian public held 13,000 tonnes of gold in jewelry or other forms.

Article at: http://en.wikipedia.org/wiki/Official_gold_reserves

II By the Government of India:

India's total gold holdings is between 10,000 tonnes and 15,000 tonnes of which the Reserve Bank of India has only 300 tonnes. Internationally, the total gold reserves (amount of gold ever mined) is between 125,000 tonnes and 130,000 tonnes, of which roughly 25,000 tonnes is held by the various central banks. Most of that is held by the central banks of theUnited States, Germany, Switzerland, France and Italy.

Full article: http://www.expressindia.com/news/fe/daily/19980411/10155044.html

Among the largest gold holdings in tones – India’s rank is 14.

As in 2005 and 2007, India holds 357.7 tonnes of gold.

Full article: http://en.wikipedia.org/wiki/Official_gold_reserves

The Reserve Bank of India holds 357.75 tons of gold forming about 6 per cent of the current value of its total foreign exchange reserves as in March 2008.

Full article: http://www.rediff.com/money/2008/mar/03gold.htm

Gold reserves (or gold holdings) are held by central banks as a store of value. As of January 2007, gold exchange-traded funds held 629 tonnes of gold in total for private and institutional investors.

Full article: http://en.wikipedia.org/wiki/Official_gold_reserves

The Indian Central Bank currently holds 3.4 percent of its reserves in gold, this represents 358 tonnes of gold. It is up to each individual central bank to decide the level of its own gold reserves.

Full article: http://www.commodityonline.com/news/topstory/newsdetails.php?id=3711

GOLD DEPOSIT SCHEME:

The gold deposit scheme announced by the Indian Finance Minister aims to draw out a part of country's vast gold holding in private hands and thus reducing India's dependence on importation of gold. The State Bank of India was the first to accept deposits.

The State Bank of India (SBI) will sell the gold collected under the scheme in the local market and thereby reduce India's dependence on imported gold. The Central Bank will provide a forward cover to SBI at a cost. This cost plus the interest on the certificate will more or less equal the SBI's rupee borrowing rate. In other words, this is an attempt by the government to convert physical gold into paper gold backed by the Indian Central Bank.

The salient features of the SBI's gold deposit scheme are:

• Interest bearing certificates will be issued against gold deposits. Interest rate is likely to be about 3.5 % per annum.
• Certificates will be redeemable in gold or rupee equivalent on maturity, at the discretion of the depositor.
• Minimum deposit – 200 grams of gold.
• Certificates will be transferable by endorsement and delivery.
• No capital gains tax, wealth tax or income tax on the deposits.
• Maturity – 3 to 7 years
• Premature redemption in gold will be permitted after the minimum lock-in of 1 year.
• SBI will give rupee loans against the certificates.

Under the said scheme this value addition would be lost. At the time of accepting the deposit, the Bank will have to test the purity and issue the certificate based upon the exact gold content. Thereafter, the Bank will have to melt this jewelry and refine it to pure gold bars. In addition to losing the value addition, the depositor of jewelry will have to bear the cost of testing the purity and the cost of refining. This effectively means that only scrap jewelry would be available for deposit.

Full article: http://www.gold-eagle.com/editorials_99/madhok111799.html

These solid bars of gold will be sourced from refineries certified by the London Bullion Market Association and so the quality would be assured.

Full article: http://in.biz.yahoo.com/031007/65/288g9.html

The GDS offers them a chance to convert their rupee deposits into gold deposits. A lot of people may opt to withdraw their Bank deposits and buy gold bars. They may then deposit these gold bars with SBI in exchange of interest bearing certificates. If people convert their rupee deposits to gold deposits then the scheme would be a miserable failure from the government's point of view for the following reasons:

• The increase in gold demand would more or less match the quantity of gold deposited under the GDS.
• The government would lose a lot of money if rupee devalues sharply against US$ or price of gold rises sharply during the tenure of deposit.
• Interest earned on gold certificates is not taxable while interest income on rupee deposits is taxable.

Full article: http://www.gold-eagle.com/editorials_99/madhok111799.html

To date, the amount of gold collected under this scheme was 10 tons.

Full article: http://www.rediff.com/money/2008/mar/03gold.htm

The 15-year Gold Bonds at 6.5 percent introduced in November 1962 could mobilise only 16.70 tons of gold. A second attempt to garner gold was made through the 7 percent Gold Bond 1980 Scheme in March 1965, which could mobilise only 6.1 tons. The third attempt with National Defense Gold Bonds 1980 (1965) garnered 13.7 tons and the Gold Bond Scheme 1993 garnered 41 tons of gold. Gold Deposit Scheme launched in 1997 could mobilise only 7 tons of gold after two years of its launch.

Full article: http://www.rediff.com/money/2008/mar/03gold.htm

SCHEME FOR FESTIVALS:

Akshaya Tritiya is the most auspicious day on the Hindu calendar to buy gold. Its the day that hails good fortune, luck and prosperity. Banks are offering schemes to purchase gold and also offering standardised gold coins and bars to help the devout seek never diminishing good fortune. Indian Overseas Bank (IOB) was the first to recognise the significance of this festival. The bank has launched fine gold coins in 24 carat imported from a supplier in Switzerland. Gold coins are offered at 4 g, 8 g, 20 g and 50 g.

Other banks seem to realise the significance of this festival and also see a business opportunity. ICICI Bank for example, sells round shaped coins in five grams and eight grams of 24 carat and 99.99 per cent purity. However, there’s a catch is buying gold coins from a bank. They are 5-10% more expensive than from unbranded jewellers as banks levy assaying and other administrative costs. But banks claim that this is a small price to pay for higher purity. Full article: http://sify.com/finance/fullstory.php?id=14191620

LOANS FOR GOLD:

The concept of banks providing loans for purchasing gold is relatively new and it is yet another segment which has immense scope to grow in a gold craving market like India.

The loan carries an interest rate between the range of 10-12 per cent and in most of the schemes available presently one can get up to Rs 300,000 as loan.

Gold can be purchased either from a jeweller or directly from the bank. The banks offering this scheme have agreement with reputed jewellers giving customer the advantage of buying the jewellery directly from them. The bank settles the payment directly with the retailer.

Full article: http://www.indiaabroad.rediff.com/money/2003/dec/08gold.htm?zcc=rl

IMPORTS:

India is the world's largest consumer of the precious metal.

India's gold imports in calendar year 2007 may have fallen by 20 percent as prices surged towards a record high, and could drop "drastically" if the precious metal heads higher. If prices keep increasing like this, then imports will again fall drastically in 2008.

Gold has risen about 37 percent since July last year. The international price of gold was at $670 an ounce on June 1, 2007 while Indian prices were around 9,000 rupees per 10 grammes. They now rule around 11,600 rupees.

In 2006, India imported about 715 tonnes of gold. Imports picked up between April and June, but demand disappeared once prices started rising from September, despite a run of religious festivals when buying usually peaks.

India's annual consumption varies from 700 to 800 tonnes, comprising about 30 percent of world demand.

Full article: http://in.reuters.com/article/businessNews/idINIndia-31407020080115

With its high rate of gold consumption, India accounts for 18% of the annual global gold demand, while its share of global GDP on nominal dollar GDP is only 1.6%. India’s share of global gold demand is about one and a half times that of the US, though its GDP is only one twentieth that of the US.

Full article: http://www.thestalwart.com/the_stalwart/2005/07/some_interestin.html According to WGC's latest data, imports in January to September 2007 were at 689.7 tonnes, up from 491.8 tonnes in the same period last year. In 2006, India imported 721.9 tonnes of gold.

Full article:

http://www.financialexpress.com/news/India-gold-imports-seen-at-record-levels/241308/

RBI’S GOLD REVALUATION ACCOUNT:

Balances in Currency and Gold Revaluation Account -

Full article: http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=574

WORLD GOLD COUNCIL:

The World Gold Council is an organisation of the gold mining companies of the world, with most of its members coming from South Africa, United States, Canada and Australia. They are making efforts to have India as a member too.

World Gold Council in India is working with the government not only to open up and liberalise the market but also to helped Indian jewellers export jewellery. Gold jewellery exports went up by 30 per cent (20 tonnes) last year and that is the only product that had a double digit growth in exports last year.

Full article: http://www.expressindia.com/news/fe/daily/19980411/10155044.html