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Streamline fixing of gold price in India
From The New Indian Express
Saturday, April 4, 2015
As the curtain comes down on the century-old London gold fix, the spotlight is on the opaque and random manner in which Indian spot gold prices continue to be determined.
Gold prices in London are now fixed by an independent provider, the ICE Benchmark Administration. The new system will ensure an audit trail that will make it easy for regulators to track the fixing process. The participating banks will bid through an online electronic platform where orders will be matched transparently.
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Sadly, the gold price fixing process in India remains archaic and arbitrary. Despite being the largest market for gold, India doesn't have a benchmark for gold in rupees. Gold prices are fixed by the Indian Bullion Jewellers Association. The price is based on calls made to the members of the association twice a day that reveal the quantities and price at which members want to buy and sell gold.
It is time the Centre evolved an independent regulatory mechanism to determine gold prices and gold trading. The suggestion in the KUB Rao Committee report on setting up a bullion corporation that facilitates trade in physical gold and sets up an effective mechanism for price discovery and mobilises gold that lies with households is worth considering. Till this is done, a formula for fixing gold prices based on quotes given by nominated agencies that are allowed by the Reserve Bank of India to import gold can be used.
Around 75-100 tonnes of scrap gold is traded in the country every year. India can follow the Chinese model, where the Chinese central bank has set up an exchange for trading physical gold. The Shanghai Gold Exchange also oversees the delivery, clearing and settlement, and storage of gold. Such an exchange will enable gold to circulate better within the country and help in arriving at a reliable price for spot gold.
All said and done, India needs to move fast toward a system for fixing gold price on a daily basis in its own interest.
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