Derivatives

Gold monetisation acquires new polish

Rajalakshmi Nirmal | Updated on January 19, 2018

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Those who have not opted to participate in the Centre’s gold monetisation scheme (GMS) so far, and have gold idling in their bank lockers, may like to consider it now. The Reserve Bank of India on Thursday announced a few changes to the scheme to make it customer-friendly.

GMS offers to pay you interest based on the weight of the old gold (in the form of jewellery, coins or bars) that you deposit with the bank. The minimum deposit is 30 grams (995 fineness). The scheme is available for short terms of one to three years, a medium term of five to seven years and long term of 12-15 years.

When the scheme was launched initially, holders of medium and long-term deposits were not allowed to prematurely withdraw their money. But last week, the RBI issued directions allowing investors making medium and long-term deposits to withdraw them before maturity after a small penalty. A minimum lock-in period of three years in the case of medium-term deposits and five years in the case of long-term deposits has been stipulated. But do note that any withdrawals cannot be in their original form. All the ornaments you give to the scheme will be melted to check for purity.

Interest on medium-term deposits (calculated in rupee terms) is 2.25 per cent while on long-term deposit is 2.5 per cent. For short-term deposits, banks are free to fix the rates themselves.

Gold coin sales

In line with earlier announcements, the government has also expanded its scheme to sell gold coins embossed with the Ashok Chakra emblem, minted by MMTC. These are now available at bank branches near you. When rolled out in November last year, only MMTC was authorised to sell these coins through its centres. These represent a means for you to acquire gold of certified purity as an investment.

In 2013, the Centre had prohibited all banks from selling gold coins, in order to reduce the ballooning current account deficit. While that ban still holds, the RBI, through a notification, has given the go-ahead to banks to sell Ashok Chakra gold coins. Only gold sourced domestically through GMS is used by MMTC to mint these coins.

Cues to watch

Moving to the price action, gold prices in the international market hit a high of $1,109.7/ounce and closed the week at $1,097, up 0.8 per cent for the week. Silver and platinum, too, closed positively. Despite the dollar’s show of strength last week, the precious metals holding on to their gains and closing in the green for the week surprised many. The US dollar index closed at 99.574 on Friday.

What supported the dollar and shaved some gains off bullion last week was the ECB’s hints at a new round of stimulus for the economy in March. Gold premium rates in the spot market in Hong Kong remained unchanged at $1.2-1.5/ounce. But, in India, spot prices moved to a discount of $1-2/ounce to global prices, as demand was hit by higher prices.

The rupee weakened against the dollar last week, stoking prices. The rupee hit a high of 68.16 against the dollar and closed at 67.63. MCX gold futures, however, closed the week at ₹26,160, up only marginally from the previous week. MCX Silver futures closed at ₹34,277, up 0.6 per cent.

This week will be very crucial for both the bullion and the currency markets. In the US, there are a couple of key data releases, with the FOMC meeting scheduled for mid-week. It is best to be cautious with your open positions. If the Fed makes a dovish remark, there are possibilities that gold could edge up further as dollar loses some steam. But there is a strong resistance at $1,110-1,113 levels, which can topple the precious metal and force it to slide to levels of $1,090 again.

MCX Gold futures will try to move past its resistance at around ₹26,700 this week, targeting 27,000. In the downside, the supports are at ₹25,800 and 25,500.

MCX Silver may move between ₹33,800 and ₹34,800 levels. If there is any sharp drop in rupee, it may then target ₹35,000 levels.

Published on January 24, 2016

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