Saturday, November 26, 2016 2:00:36 PM
Not a very golden time for gold in India
MMgys
Mumbai (Nov 26) India’s wedding season is in full flow and there should be brisk trade at this time of year in Zaveri Bazaar, the jewellery market in south Mumbai.
But the jewellery shops that line the chaotic, historic narrow streets are seeing customers only trickle in.
Kumar Jain, who owns a shop in the bazaar, laments the lack of trade, as he sips a cup of chai.
"My shop should have been heavily rushed," he says, explaining that business is just 10 per cent of what he would expect it to be for this time of year.
After India earlier this month demonetised the highest value notes of 500 (Dh26.80) and 1,000 rupees in an effort to crack down on the widespread problem of black money, there has been a cash crunch amid limits on withdrawals and the amount of old notes that can be exchanged.
One customer in the shop, Shilpa Doshi, looks at designs for a gold kada, a type of bangle worn by men, that she wants to buy as a gift for her son’s wedding. She takes out a mass of gold chains from her bag.
"I don’t have cash, so I want to exchange," she says.
Mr Jain says that most of the customers coming to his shop since the demonetisation move have been bringing their old gold with them to swap.
"She’s buying just 30 grams of gold but she should be buying 300 grams or 3 kilograms."
What is most worrying for the gold trade in India, though, are the rumours that there could be a ban on gold imports, as India looks to further clean up its financial system. There have been no official comments on this and it is unclear whether such a ban is really being considered. But the rumours alone have been enough to rattle jewellers. Gold premiums have hit two-year highs as jewellers and traders have increased their purchases of gold amid concerns there will be a temporary ban on imports, according to Reuters.
"It is conservatively estimated that Indian households and institutions are the largest owners of gold and the money invested in the metal is mostly [financially] unproductive," says Hareesh V, the research head at Geofin Comtrade. "So, there are high chances that our finance ministry may impose stringent measures on gold holdings and its transactions. Chances of banning gold imports or imposing restrictions are reasonably to be believed."
In recent years, India has taken steps to try to curb imports of gold, including a series of hikes on import duties, because it weighs on the country’s current account deficit. Gold is largely an idle asset, so India has been trying to bring it into the formal financial system, with the launch of a sovereign gold bonds scheme, for example.
Mr Hareesh says that gold plays a significant role in India’s shadow economy.
"People having large amount of unaccounted money usually prefer to keep their holdings in different assets. Possessing gold in physical form has been largely seen among such people due to its special appeals like high liquidity, imperishability, easiness to keeping safe. It is very difficult to obstruct such cash inflows into the gold market under the absence of strict rules to tackle all gold transactions in the country."
Anil Rego, the chief executive of Right Horizons, an investment advisory and wealth management firm, points out that increases in duties and taxes have fuelled intense levels of smuggling of gold into India.
"An import ban would just open the floodgates to illegal imports or smuggling," he says. "Gold is considered a ‘safe haven’ and has value all over the globe. It is difficult, if not impossible, to precisely identify the source of gold held and the time of its purchase."
Source: TheNational
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Mumbai (Nov 26) India’s wedding season is in full flow and there should be brisk trade at this time of year in Zaveri Bazaar, the jewellery market in south Mumbai.
But the jewellery shops that line the chaotic, historic narrow streets are seeing customers only trickle in.
Kumar Jain, who owns a shop in the bazaar, laments the lack of trade, as he sips a cup of chai.
"My shop should have been heavily rushed," he says, explaining that business is just 10 per cent of what he would expect it to be for this time of year.
After India earlier this month demonetised the highest value notes of 500 (Dh26.80) and 1,000 rupees in an effort to crack down on the widespread problem of black money, there has been a cash crunch amid limits on withdrawals and the amount of old notes that can be exchanged.
One customer in the shop, Shilpa Doshi, looks at designs for a gold kada, a type of bangle worn by men, that she wants to buy as a gift for her son’s wedding. She takes out a mass of gold chains from her bag.
"I don’t have cash, so I want to exchange," she says.
Mr Jain says that most of the customers coming to his shop since the demonetisation move have been bringing their old gold with them to swap.
"She’s buying just 30 grams of gold but she should be buying 300 grams or 3 kilograms."
What is most worrying for the gold trade in India, though, are the rumours that there could be a ban on gold imports, as India looks to further clean up its financial system. There have been no official comments on this and it is unclear whether such a ban is really being considered. But the rumours alone have been enough to rattle jewellers. Gold premiums have hit two-year highs as jewellers and traders have increased their purchases of gold amid concerns there will be a temporary ban on imports, according to Reuters.
"It is conservatively estimated that Indian households and institutions are the largest owners of gold and the money invested in the metal is mostly [financially] unproductive," says Hareesh V, the research head at Geofin Comtrade. "So, there are high chances that our finance ministry may impose stringent measures on gold holdings and its transactions. Chances of banning gold imports or imposing restrictions are reasonably to be believed."
In recent years, India has taken steps to try to curb imports of gold, including a series of hikes on import duties, because it weighs on the country’s current account deficit. Gold is largely an idle asset, so India has been trying to bring it into the formal financial system, with the launch of a sovereign gold bonds scheme, for example.
Mr Hareesh says that gold plays a significant role in India’s shadow economy.
"People having large amount of unaccounted money usually prefer to keep their holdings in different assets. Possessing gold in physical form has been largely seen among such people due to its special appeals like high liquidity, imperishability, easiness to keeping safe. It is very difficult to obstruct such cash inflows into the gold market under the absence of strict rules to tackle all gold transactions in the country."
Anil Rego, the chief executive of Right Horizons, an investment advisory and wealth management firm, points out that increases in duties and taxes have fuelled intense levels of smuggling of gold into India.
"An import ban would just open the floodgates to illegal imports or smuggling," he says. "Gold is considered a ‘safe haven’ and has value all over the globe. It is difficult, if not impossible, to precisely identify the source of gold held and the time of its purchase."
Source: TheNational
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