With the Indian government pushing for transparency in governance and having an appetite for reform, it is time for introduction of spot exchange for gold, the World Gold Council (WGC) said on Thursday.
The WGC is a market development organisation for the gold industry.
In a report “A gold spot exchange for India: Delivering structural reforms”, released on Thursday, WGC said a spot exchange can play a key role in standardisation of bullion in the Indian market and improve trust and quality of the yellow metal sold in India.
According to the report, a spot exchange can create a transparent price discovery mechanism and the traded price can also be used as the “India reference” price. The exchange can enable formalisation of the Indian gold market which in turn would improve transparency and tax compliance.
“The exchange will also support development of the domestic refining and gold scrap market and stabilise the simpact of gold on the Current Account Deficit (CAD),” the WGC said.
According to WGC, a spot exchange for gold would help industry players to source gold directly eliminating the intermediaries and also help financial institutions to launch gold backed products.
The WGC said India’s annual demand for gold is around 800-900 ton and second only to China in the world.
The gold mining industry body WGC said a spot exchange enables market participants to buy and sell physical gold with immediate (T+2) settlement of gold and cash.
Though India currently has several commodity exchanges, they operate as futures exchanges which are primarily used to hedge against gold price risk and take proprietary positions on gold price movement, the report said.
“A spot exchange, encompassing a broad ecosystem for efficient physical trading of gold, can play a significant role in reforming the gold market in India,a the report said.
Citing Turkey and China which have similar culture and consumption pattern to India, the report said those two countries faced similar challenges around price, quality and monetisation.
Post introduction of gold spot exchanges, the market in Turkey and China witnessed growth and improvement, WGC said.
According to WGC, the gold spot exchange could be implemented in three phases namely mobilising market participants, drawing the blueprint for the exchange and implementation.