India enjoys a significant position in the international markets and is the second-largest consumer of gold in the world, with an annual demand of over 800-900 tonnes.
The domestic market is, however, confronted with issues such as a lack of quality assurance, poor pricing transparency, and significant market fragmentation. These issues can be solved, and the consequent market inefficiencies, by using a gold spot exchange.
Gold exchanges play a vital role in the economy of India. They are responsible for setting the price of gold in the country and acting as a catalyst for the gold sell and buy process.
Framework for gold exchange from SEBI
The Securities and Exchange Board of India (SEBI) has authorised the framework for establishing gold exchanges in the nation, paving the way for the development of the gold trade in that nation in a much more orderly manner.
Till now, India has followed the London Bullion Market values.
The framework for the Gold Exchange and the SEBI (Vault Managers) Regulations, 2021, was adopted by SEBI at its board meeting on September 28, 2021, allowing spot gold trading.
Notably, Nirmala Sitharaman, the finance minister, had stated during the Union Budget 2020 that the government is setting up the India International Bullion Exchange (IIBX) at the International Financial Services Centre (IFSC) at the GIFT City in Gandhinagar, Gujarat.
As a result, SEBI was designated as the gold exchange’s regulator. The assaying, delivery, quality, and vaulting criteria will all be governed by SEBI.
India will join a select group of nations having gold exchanges, including – the UK, Turkey and China.
How will the gold exchange work?
With the use of Electronic Gold Receipts (EGR), the gold exchange will enable gold trade. T
- EGR is an instrument that symbolises the actual gold stored in registered vaults
- EGRs will function similarly to other securities, like equities, in terms of trading, clearing, and settlement
- Investors can create electronic gold receipts using the physical gold they own. And since the EGRs have permanent validity, the individual may have them for as long as they like. In addition, when investors give up their EGR, they may get the actual gold.
- The clearing corporation will settle the transactions made on stock exchanges by sending EGRs and money to the appropriate buyer and seller.
- Along with retail investors, foreign portfolio investors, banks, jewellers, and traders of gold bullion are also permitted to trade on the gold exchange.
- According to the SEBI framework, vault managers registered with SEBI with a net worth of Rs. 50 crores would be the ones who create the EGRs.
- In addition, vault managers would handle trader complaints, withdrawals, safekeeping, and receiving deposits.
- Organisations incorporated in the nation must be in charge of the vaults. Vault managers would be within SEBI intermediaries’ regulatory purview.
- The SEBI has said that the EGRs will be fungible, meaning the holders can exchange the EGR issued by one vault manager for another.
What are the benefits of the gold exchange?
Gold exchange can provide several benefits, some of which are:
- Greatly assist retail gold buyers since exchanges will deliver much-needed transparency and purity assurance to markets across the country
- Gold exchange would go even out regional price variations. Given that gold prices are now fixed worldwide
- Gold prices continue to be higher since the nation continues to follow the London Bullion Market pricing. However, with the gold exchange, domestic gold consumption may increase since gold prices will be lower as India sets its price.
- To meet the primary goals of the gold exchanges, the regulator must increase transparency and stop unauthorised jewellery manufacturing by a gold selling company.
When deciding whether to purchase or sell gold, there are a few crucial aspects to consider. First, sellers/buyers want to research the current market value of gold so they have a good idea of what price to expect. They also must consider the taxes and fees associated with selling gold, as these can vary depending on their location.
Finally, work with a reputable gold-buying/gold-selling company that gives the best advice and guidance.
The process of selling gold with Muthoot Gold Point is smooth since they employ cutting-edge technology to confirm the gold’s current price, weight, and purity. Sellers are guaranteed the best price since the gold is evaluated before them.