Commodity Analysis

Now, India’s very own gold coins

Rajalakshmi Nirmal | Updated on January 20, 2018 Published on April 10, 2016

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Investors of physical gold can now use this reliable route to buy the yellow metal

Indian Overseas Bank kicked off sale of Indian gold coins on Friday in its branches in Mumbai on the occasion of Gudi Padwa. The RBI had given the nod to banks in January to sell these coins.

These coins, minted in India, will have the national emblem of Ashok Chakra engraved on one side and the face of Mahatma Gandhi on the other and will join the global basket of national coins, including the American eagle coins (of the US), Panda coins (of China) and Maple Leaf coins (of Canada).

With a third of the gold demand in India (200-250 tonnes a year) coming from investors who buy coins/bars of gold, this new coin should see strong demand.

How it is different

So far, Indians who wanted to invest in physical gold either bought it as coins or jewellery. Banks and post offices were selling gold coins imported from outside the country. But in 2013, as the RBI wanted to curb demand for gold, it barred banks from selling gold coins and India Post too discontinued it. So, physical market investors had no option but to resort to buying gold from jewellers for a rate that is arbitrarily determined and purity that may or may not be certified. Now, however, has come a new option for investors looking to invest in the yellow metal. The Indian gold coin, minted in India and sold by MMTC and select banks, is available in denominations of 5/10/20 grams. The coin will be of 24 karat (999 fineness) purity and wrapped in tamper-proof packaging.

It also has anti-counterfeit features such as the one in currencies plus a hallmark certification that makes it more reliable than gold that is bought from the next-door jeweller.

But, to re-sell these coins you have to take them only to a jeweller. “As of now, the RBI does not allow banks to buy back the gold coins they sell because banks in India cannot buy gold domestically and that continues…,” said Somasundaram PR, MD, WGC India. But, given the Indian government’s quality assurance, and since rates for these coins are made public, investors who want to monetise these coins after initial investment can get the best price.

The price of these gold coins is fixed by MMTC. On Friday, the rate of a five-gram coin was ₹15,832 in Chennai (excluding VAT and other taxes). Though these coins from banks may be at a premium to market prices, the assurance on purity and the advanced anti-counterfeit features make them attractive.

Better option than jewellery

Investing in paper form is however the best way to invest in gold and sovereign gold bonds are the best available avenue today. But, for physical market investors, gold in the form of coins/bars from a bank is better than jewellery, for two reasons.

One, every time you sell gold jewellery you forgo a portion of returns due to wastage and other charges and you will end up selling the gold at below market rate.

Two, there is a risk of the jewellery fetching you lower returns if it is lower karat gold.

Cues for the week

Gold prices ended the week at $1,240/ounce, up 1.5 per cent for the week. Platinum and silver too ended in the green, up 1-2 per cent at $15.37/ounce and $967.8/ounce, respectively. The rally in precious metals was thanks to a weak US dollar. The US dollar index declined 0.4 per cent and closed the week at 94.24 as investors felt uncertain about rate hikes by the Federal Reserve in the near term.

In India, gold futures contract on the MCX closed at ₹29,131, up a solid 3.8 per cent. The MCX silver futures contract too ended up 2 per cent at ₹36,671. In the spot market, gold prices, which were ruling at a discount of over $30/ounce, saw the discount reduce to $20/ounce, as demand from dealers picked up.

Investors need to closely watch the direction of US interest rates for clues to trade on gold. Next week, there are a few key data releases in the US — starting with retail sales data on Wednesday, consumer price index and jobless claims on Thursday and the crucial industrial production numbers on Friday. The greenback has dropped sharply in the last few weeks helping gold move up sharply. If there is any change in market expectations following some stronger data points, gold bulls may have to retreat. Technically, resistance for the metal is around $1,246-50 levels and support at $1,200.

Indian gold investors should trade with caution as the rupee is getting volatile. MCX gold may easily move up to ₹29,500 this week and if it crosses the resistance at ₹29,800, then ₹30,000 will be an easy target. Supports are at ₹28,000 and ₹27,500. MCX silver futures contract made a smart upmove last week. But since it couldn’t move past its resistance around ₹36,600-36,700 levels that we mentioned last week, gains were limited. If this resistance is crossed this week, it may reach ₹37,000. Supports are at ₹35,000 and ₹34,550 levels.

Published on April 10, 2016
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