When Budget smell is in the air how can gold discussions stay touched. Diamond might be for ever but the before the charm of gold, everything else seems faded. the craze for gold in India has been seeing an exponential growth since I could not recall. Gold stands way far from many other precious stones and metals. Lets begin the talk with the current gold price. According to moneycontrol.com, gold prises have declined by 144 rupees and dropped to 25910 indian rupees.There is a huge demand for gold in India. Comparetively India has lesser gold mines and has to import golds around 800-1000 tonnes per year. India seems to be in need of gold recycling to bring down the current account deposit and gold imports.
Budget 2015-16 comes up with two gold schemes i.e. Gold Monetisation Scheme [Gold Deposit Scheme] and Soverign Gold Bonds.
1) Gold Monetisation Scheme :
Effective possibly from coming May, will replace the current Gold Deposit and Gold Metal Loan Scheme.The Scheme facilitates temples,trust, institutions and other individuals with holdings of physical gold , unused of broken jewellery to open a metal account in the bank and deposit there gold there just like we deposit money. Banks will access the purity and value of gold and will provide points corresponding to checks just like the stock units in demat account. The Banks will also give interest to the depositor for these gold deposits. The rate of interest will be somewhere between 2% to 3%. You are still the owner of the gold and can get back the gold after the fixed tenure. The tenure for these deposits is yet to be decided [ can be between 1 to 7 years]. After the completion of tenure you can collect your gold with the same purity and value. Thus Gold Monetisation / deposit schemes offers interest in gold which otherwise would have been at home or bank locker.
How does Bank profit from Gold Monetisation Schemes ??
Banks will lend these golds to jewellers on a little higher interest rates so they could earn interest.
The main purpose of such scheme is converting the country’s gold holdings into cash to spur spending and investment, and limit the need to import gold.
2) Sovereign Gold Bonds :
For those who donot have holdings of physical gold but have plans to buy gold as an investement, Government has come up with the idea of gold bonds as an alternate to buying physical gold. The individuals planning to buy gold coins or gold bars can buy these gold bonds from the banks. The bank will give interest [1% or 2%] on these bonds like on FDs. At the time of redemption you can get back the gold at the price on the day of redemption. In this way neither bank nor you will be purchasing physical gold , helping in reducing the gold import. This schemes proves to be better than Gold ETFs as in the latter cae the fund agencies also take away a fixed amount as processing fee. Jaitley had also announced the development of an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold.
3) Indian cold coin:
The Government also proposed to commence work on developing an Indian gold coin, which will carry the Ashok Chakra on its face. Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.
