India getting chance to turn its gold into paper

India Gold Dealers Tap Vast Domestic Stocks

By Joe Leahy
Financial Times, London
Monday, June 29, 2009

http://www.ft.com/cms/s/0/6d87233e-64d3-11de-a13f-00144feabdc0.html

MUMBAI -- Indians are set to begin trading on Tuesday on the country's new gold bullion market in a move likely to mobilise the thousands of tonnes of the precious metal that people keep hidden under their beds as savings.

The National Spot Exchange, controlled by Financial Technologies, the Indian market company, will begin offering contracts for domestic gold bullion, ranging in size from 8g to 1kg.

"Though India has a huge household stock of around 20,000 to 25,000 tonnes of gold, there was no single market available where this could be sold," said Anjani Sinha, managing director and chief executive of the National Spot Exchange.

Indians have saved in gold for millennia. The country is the world's largest consumer of the metal, importing nearly 800 tonnes a year, or 20 per cent of global demand.

But while there is a modern market for the import of bullion, once it enters India, there is no transparent exchange for its resale and conversion back into bullion.

Most Indians are forced to sell their gold to jewellers, who for a commission of between 5 and 10 per cent take it to refiners to melt down and re-sell.

"You don't know what the purity is, you don't know what the jeweller is going to pay to you ... and the price realisation is not good because there is no electronic or nationalised market for selling gold," said Mr Sinha. He said the total commission paid under the new system would be about 50 basis points, or 0.5 per cent.

Sellers will take their gold to approved refineries, which will turn it into gold bars of international standard "995" purity, meaning it is 995 parts out of a thousand pure gold.

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