M.R. Subramani
M.R. Subramani

News Editor-cum-Commodities Editor who thinks there is always a lighter side to everything, from business to politics

M R Subramani

A golden door of opportunity

| Updated on November 07, 2013 Published on November 07, 2013

The Government may have tightened gold import norms, making it difficult for investors to invest in the yellow metal. But if you are one who is willing to take risks, then there is a door that is wide open to help you take advantage of the current situation.

We all would have often heard the saying that if one door is shut, another opens. Maybe, our Government thinks that it has closed one door through its policy decision. But the reality is that it leaves another wide open, particularly if you are smart in making money. Look at the decision to tighten gold imports. The decision was taken to set right the trade imbalance that was leading to current account deficit.

There can be no two views on the fact that gold imports were causing problems, particularly when there is no dearth of the precious metal in the country. A World Gold Council study has put the amount of gold stocks above ground at 20,000 tonnes. It makes up 11 per cent of the total gold stocks in the world! It also means that the per capita gold ownership in our country is about 15 gm. No wonder then that Finance Minister P. Chidambaram is stern in spoiling gold buyers’ party.

The most controversial decision among a slew of measures taken by the Manmohan Singh Government to curb gold imports is the one that stipulates that at least 20 per cent of an imported consignment of gold should be re-exported. The stipulation, implemented through a RBI notification issued in July, has brought down imports to a trickle with no imports taking place in August and a just a handful of tonnes coming in in September. This has resulted in gold prices in the country ruling at a premium of about Rs 200 a gm during the festival time. Let’s look how. Pure gold in global market on November 6 ruled at $1,317. This converted in Indian rupee is around Rs 26,500 for 10 gm.

If you relate this directly with the prevailing price of Rs 30,975 for pure gold (99.9% purity) in Mumbai, then there is a premium of over Rs 4,000. But let us also take into consideration the import duty of 15 per cent imposed by the Government in September. If we take this into account and add other costs, it would come to around Rs 30,500. The prevailing price then looks reasonable.

At over Rs 30,000 for 10 gm, most Indians are finding it difficult to buy gold. More than that, with imports becoming scarce, investing plans have gone awry. Gold exchange-traded funds have become costlier and in some cases, the funds are not opening new accounts. Doors for investment closed, you say? No, is my answer. Remember that there is always an opportunity lurking nearby. Now, can we look at what is happening in the futures market?

The market or the exchange can be your choice, either NCDEX or MCX. December gold futures on MCX and NCDEX on November 6 evening were around Rs 29,750. If you have gold coins or bars or even jewels (which too fetch good prices these days with jewellers being liberal on discounting it for wastage), you can sell it on spot. Today, it is likely that you may get a good price for the coin or bar that could match market prices for a new one. While resorting to selling in the physical market, we can buy from the futures market. Even if we discount trading and other charges, we could be netting at least Rs 500 for every such transaction. Or if we buy February gold contracts on these exchanges, we could be paying even less and gaining more. There could be a question mark over delivery on futures exchange. It can always be settled in cash.

If you love taking risks, then the Government has actually opened a golden door for you. If one has the courage, he/she can sell gold in the spot market and buy in the futures market.

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Published on November 07, 2013
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