The blueprint for a gold spot exchange in India

Goldhub blog

The blueprint for a gold spot exchange in India

Somasundaram PR
Managing Director - India
World Gold Council

Posted:

On Friday 2nd August, the Blueprint for Gold Spot Exchange in India was released at the India International Gold Convention (IIGC) in Amritsar. The report was produced by the industry steering committee, which is comprised of 27 major stakeholders of the bullion industry – both global and domestic and is chaired by the World Gold Council. 

Helping improve the industry

Unlike other key gold market centres such as China and Turkey, India lacks a regulated and standardised spot gold trading architecture. This is an important difference.

The current Indian bullion market faces critical issues such as:

1.    Lack of quality assurance
2.    Fragmented liquidity and weak price transparency
3.    Regulatory challenges such as non-compliance to responsible sourcing standards

There is a pressing need to reform the gold trading market in India and the industry hopes that the gold spot exchange will aim to address these issues.

As well as an efficient price discovery mechanism, we believe a gold spot exchange would lead to a successful implementation of gold monetisation scheme, development of gold-backed products, empower bullion banking and will lead to a greater integration of India in the global gold market. 

Laying the groundwork for future development

In 2014, we published the report Why India needs a gold policy based on work commissioned to the Federation of Indian Chambers of Commerce (FICCI). It assessed gold policies adopted in other countries and provided a suggested policy roadmap for the Indian gold market. One of the proposals was a gold spot exchange, which would usher greater price transparency and boost recycling by consumers. The India Gold Policy Centre (IGPC) at IIM-Ahmedabad further tried to understand the Viability of a Gold Exchange in India through survey of industry participants across the value chain of gold industry and organised focus group discussion. The report concluded that a gold spot exchange in India is eminently viable.

Following this, we published A gold spot exchange for India: Delivering structural reforms. This was a comprehensive look at the elements needed for a gold spot exchange, recognising the potential benefits for entities across the value chain and developing a roadmap for multi-stakeholder collaboration needed for success. This then led to a formation of the industry steering committee. With numerous one-on-one meetings and three steering committee meetings, we prepared the blueprint for the gold spot exchange in India. 

Prerequisites for success of exchange

But while a lot of work has already been done, challenges remain. Participation will need to be fostered and liquidity generated. Based on what we have seen in other markets, as well as India’s domestic environment, certain key factors will be prerequisites for success of the exchange:

 

Establishing a new spot exchange in India is a not an easy task, but one which promises huge rewards. The implementation of the new exchange will need the concerted effort and collaboration with various stakeholders. The blueprint should be viewed as a key guiding document and a compass that will benefit the various participants across the gold value chain and help it to integrate with the global bullion market. With stakeholder engagement – from across the industry – as well as government support, this dream can become a reality.