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Gold Spot Exchange will Fully Organize the Entire Trade in the Country

Prithviraj Kothari, MD, RSBL, discusses about why Indian gold industry needs a Gold Spot Exchange to streamlining the entire value chain across the country. He says very emphatically that there is no need for small jewellers and traders to lose business, instead it will enable them to participate in the main stream value chain directly, returning them better business opportunities. He also believes that spot exchange will make the industry fully transparent and trade participants will have better access to finance while talking to Bullion Bulletin at IIGC’18. Excerpts….

NITI Aayog has recommended for a Gold Spot Exchange in the country? What is your view on this?

At the outset I would like to say that if spot exchange comes, business will grow tremendously. There is a misconception in the market or I would say some participants like small jewellers, traders fear that if spot exchange comes, they will be out of the market. Considering my 35 years of experience in the market, there is no point to keeping this misconception in mind. With starting of spot exchange, transparency in pricing will come, purity issue of gold (currently existing in the market) will be solved automatically. Additionally, location swap (sitting in Mumbai, for example, it is possible to swap goods with another dealers anywhere in the country where it is needed) and financing facility will be available in the market.

On the other hand, traders can utilize both spot and future exchanges to contain the price risk or trade risk. With spot exchange in place, there is no point of keeping gold in one’s store, rather keeping it in the exchange and whenever is necessary delivery can be taken. This spot exchange will run by a regulator which ensures full security of trade as well.

When this exchange comes, pricing will be determined based on current gold price (basic gold rate) + location swap premium. It depends upon demand and supply. When demand is high, premium will be more and when there is low demand or no demand, it may go to negative as well. This will ensure transparency in the market and the current unorganized trade will go away.

Who will regulate this exchange?

Whatever gold is transacted today in the country, we have to depend mostly on banks. Banking regulation comes under RBI. On the other hand, SEBI is the regulator for financial and commodity market; I have doubt whether they would have time for spot exchange. We want both of them and may form a third separate entity.

How can we integrate all associations/trade bodies in the country and talk in a same language so that government can understand the need of the trade?

There are people who always look for benefits of their own; they do not look for bigger benefit for the trade. Look at IBJA’s policy. Lot of people disagree with IBJA policy. But, if you see the policy, it is always for national interest of the trade. What happens in India that trade associations in the individual level go to the government and express their opinion. The same opinion is again then refuted by another association. In the bargain government gets confused. So, government has decided that lets form a body comprising representatives of associations.

Refining industry is growing very fast in India. The major problem for the industry is to getting dore bars. Indian refiners are unable to sign long term contract with major miners. What can be done in this issue?

In India policy changes very fast. Even if opportunity comes to sign long term contract, we think twice because of change in government policy. Miners are ready to supply adhering all the international sourcing guidelines, but for us it is difficult for signing any contract of large quantity with these miners because of uncertainty in policy. Our refiners have the capacity to scale up  the production, but not committing any large capital because of policy difficulties. What I request to government that they could allow scrap to come to India so that refiners can continuously get raw material. Lot of scrap is available in international destinations like Dubai, Korea and other Asian region. We can utilize that effectively.

Your view on the conference.

We are always with Foretell. Foretell can do wanders; they can engage with trade bodies, government and can effectively bring changes in the industry. I have been associated with this conference since the first one and I congratulate the entire team.

Disclaimer: Views are personal and not the views of the publisher.