India Receives Muted Response on Gold Monetization
India's Gold Monetization Scheme: A Way to Curb Imports
Muted response
The population of India doesn’t seem to appreciate the Indian government’s well-planned gold monetization scheme. The response to the scheme has been fairly muted. The government witnessed an inflow of a mere 400 grams in the first 15 days after the scheme became active.
Only one bank has been active regarding agreements with hallmarking centers and gold refiners. Part of the plan was that 11 banks would sign agreements with all certified 35 hallmarking centers. To motivate banks to do this, the finance ministry clarified that the gold deposits would be made transferable. Banks would be allowed to lend against gold deposits. The ministry also clarified that banks could ask customers about the ownership of the gold being deposited.
In contrast, the response to gold bonds and coins has been much better. A government source said retail investors had applied for Rs 100 crore worth of bonds and 6,000 gold coins had been sold.
The government is now trying to relax the norms on the gold monetization scheme so the response slowly picks up. The rural Indian population faces a dilemma parting with the much-loved asset. They also consider gold as a store of value against inflation.
Indians have been gold hoarders for centuries, and to get them out of that habit may require some work. Investors also have to disclose their permanent account numbers registered with the income tax department and if the value of gold is worth more than Rs 50,000 rupees. Some people fear it’s a way for the government to keep tabs on the source.
The overall scenario seems to be unaffected by the introduction of these gold monetization schemes, and thus there isn’t much impact on the demand for gold. Without any impact on demand, the prices of gold and gold-mining-based ETFs such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) may be unaffected.
Mining companies such as Aurico Gold (AUQ), Franco-Nevada (FNV), Yamana Gold (AUY), and Barrick Gold (ABX) will also be spared. These four companies make up 16.6% of the Market Vectors Gold Miners ETF (GDX).
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