View from India: Gold trade formalised as Diwali kicks off
As India prepares to celebrate Diwali, the Festival of Lights, this week, the yellow metal which we all know as gold is really shining - and for the right reasons.
As the world’s second-largest consumer of gold (after China, according to 2016 statistics), India has a reason to cheer this quarter. In an attempt to formalise gold trade in India, Arun Jaitley, the finance minister launched India’s first option for trading gold on MCX, a leading commodity bourse with a tremendous presence in gold, base metals and energy. The trading is now open for investors to trade in 1kg gold. In order to popularise the platform, transaction fees on the product have been waived until December 2017. Trading began on October 17, the day which is celebrated as Dhanteras. As a festival of wealth and prosperity, Dhanteras is considered an auspicious day to buy gold and Dhanteras is followed by Diwali.
Other glittering offers were unveiled. StockHolding, jointly promoted by banks and financial institutions, announced the launch of GoldRush this Diwali. This new offering is in association with MMTC-PAMP India, which is a joint venture between PAMP SA Switzerland and MMTC Ltd, a Government of India undertaking. It operates the world’s most advanced precious metals processing facility under the direct technical supervision of PAMP.
GoldRush carries the promise of being a cost-effective means of owning physical gold in quantities to suit all budgets. Customers need to open a metal account MMTC-PAMP India and their gold would be set aside in an allocated enclosure within the vault, complete with insurance cover and security. Consumers can buy gold online anytime and accumulate it even in small fractions. When consumers decide to withdraw the gold, it will happen at real-time prices and will be delivered to their doorstep. Effectively, GoldRush is a gold buying and storage solution, along with a withdrawal facility.
Of course, there are various digital channels open for buying or storing gold, such as the National Spot Exchange which recently launched the ‘E Gold’ initiative. As the name indicates, it is an electronic means of storing the gold, which is owned by the investor. There are also mutual funds that have thrown open electronic schemes, an example being the Gold Exchange Traded Funds (ETF). Here, investors store gold in a digitised format that can be traded on the stock exchange like the trading which happens on other stocks and commodities.
Besides that, the overall gold jewellery sales have increased during this Diwali season. This can be attributed to the fact that earlier in the month the Indian authorities had withdrawn the amendment to the Prevention of the Money Laundering Act (PMLA) due to which jewellers were subject to anti-money laundering legislation. As a result, the Diwali festivities has triggered new gold purchases to such an extent that the price of the yellow metal traded at a premium this week, its highest level in the last three months.
Moving beyond the glitter of gold, the auto industry seems to have switched gears and is moving on to a different track this Diwali. The journey seems to be less explored largely because the Goods and Services Tax (GST) Council had announced cuts in taxes of various items that come under the purview of the new indirect tax. Understandably, a tax cut is being awaited on passenger vehicles, too. This announcement was made on October 6, 2017.
Looking back, the car sales figure, which peaked during the Dussehra festival last month, has somewhat remained flat and has not picked up this month as it normally does during Diwali. Meanwhile, car dealers have ended up with a build-up of inventory at their dealerships. As a natural consequence, car companies and dealers are going that extra mile to woo customers with a basket of offerings, including extended warranty schemes, accessories and freebies like assured gifts on every purchase. Usually, the takeaway is in the form of gold coins. Even loan options are packaged with low-interest rates to make the buying process as attractive as possible.