What India can learn from China’s international gold trading in free trade zones
As the Chinese President Xi Jinping enjoyed PM Narendra Modi’s Gujarati hospitality and delicacies, the Chinese officials signed agreements in India. In the meanwhile back home in China they launched a wonderful product – International gold trading in Free trade zone , which is open to foreign players, and has 11 yuan denominated gold contracts. Which means that players outside China would buy and sell Yuan priced gold, not USD denominated and it will be Tax free!Even as the whole world is selling gold to invest in equities for better returns, India is getting ready to start buying as festivals and weddings start from next week. And then there is China which is looking to change the way world does gold business and pricing.
India has not only lost its 1st place to China as the world’s biggest consumer but also the opportunity to trade a contract worthy of global participation and price discovery.
China imported 1000 tons of gold in 2013 beating India to 2nd position as the biggest gold consumer in the world, also produced 400 tons. So it just seems right that the top importer and consumer trade gold in its own currency and perhaps create a benchmark price for just Asia but others too. People close to the development say that it might take 8-12 monthss for the volumes to pick up but they sure have a potential contract in hand.Trading on the exchange will be physically settled and participants will be bullion banks, refiners, producers, and trading houses which means that there will be actual industry participants trading. The trading band set at 30% is a big one to accommodate price movement. Until now it has been about Comex and Tocom prices but China is set to change that. The launch will make it easier for the Asian investors and funds looking for opportunities in East.
So while the product has many advantages, Indian bullion traders and banks will not be party to this as we have regulatory curbs on trading in Foreign Exchange. India has had a lot of these ideas for years but haven’t seen the light of the day.
Indian Bullion industry has been asking government for Free trade zones and other schemes but today finds itself weighed down by high import duty and the 80:20 rule.
The Global gold prices in the meanwhile are trading at near 9 month lows. The decline in Indian gold prices by near 10% in this year is seen as good news for Indians heading into a period of wedding and festivities. The demand next month for dhanteras is expected to see good numbers. Industry estimates 700 tons of gold imports this year into the country.
As the WGC report shows 75% of Indian consumption of gold is in jewelry. And here comes the season when the imports have started climbing up and so has the premium. The last 3 months of the year are consumption months, so here is to the Indian Festivals and weddings and Chinese products !!