The Telegraph
Since 1st March, 1999
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All that glitters may be tradeable paper and not really gold

Calcutta, Aug 5: Gold has always mesmerised men. And women. Now, there’s a move to turn the yellow metal into paper — tradeable paper.

It’s the sort of alchemy that women probably won’t like.

But long-suffering men, who have scrimped and saved to meet badgering demands from spouses for gold jewellery, will probably relish the opportunity to unlock the worth of idle gold jewellery stashed away for years in lockers — and make some money in the bargain.

A number of banks like ICICI Bank are badgering the RBI to permit retail buyers of gold to turn their physical stocks of gold jewellery into tradeable paper. Poof! Just like that!

It’s called dematerialisation in financial parlance — and it’s been done before with stocks and bonds. Now banks want to extend the same concept to the gold lying in your house and the bank locker.

The banks are calling them gold accumulation schemes which carry a two-way benefit. They will enable you to build gold reserves for your daughter’s wedding and at the same time trade them in and make a little moolah whenever opportunities arise.

The gold accumulation schemes, run in an informal way in south India by leading jewellers, have been extremely successful in Japan and could completely change the complexion of bullion trade in India.

Although gold is perceived as a safe haven asset and the best store of value in turbulent times, people do not normally trade in gold which, in India, is bought mostly in the form of jewellery. Since it is almost impossible to sell it profitably, gold jewellery is hardly ever sold by the common man unless in dire straits.

“Do you sell your household jewellery when gold prices rally' Even if you did, you wouldn’t have profited as much as you would have if you held gold say in the form of bars or bank receipts,” an ICICI Bank official said.

As official trading in bullion futures is set to take off in India, the National Securities Depository Ltd (NSDL) is working on the idea of dematerialising precious metals, which will enable people to hold gold and silver in the form of digital bank receipts without having to physically possess bars, coins and jewellery.

Simultaneously, banks are pushing to introduce a scheme that would allow people to invest in gold and not in relatively illiquid jewellery.

Just suppose you want to build gold reserves for your daughter's wedding and decide to invest Rs 10,000 annually for 20 years.

Under the 'gold accumulation scheme', the bank would credit 100 per cent pure gold to your account every year. At the end of the term, you could ask the bank to deliver the accumulated gold physically or pay the value of your deposit in cash.

“The advantage is that if the price of gold spurts, you can offload your deposit and book profits, which you could not have done if you had bought jewellery instead. If you sold jewellery, you would have to pay various charges. What's more, with jewellery, you can never be sure about the purity of gold,” said the official.

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