The Hybrid India Gold Conference 2021 was held between 12 and 13 November 2021, at the Marriott Hotel, Jaipur. The conference was organised by Eventell Global Advisory Private Limited and presented by India Bullion and Jewellers Association Ltd (IBJA). More than 270 delegates participated physically, while about 130 joined virtually, at the two-day annual conference that saw more than 25 sponsors and 44 speakers express their views around the theme ‘Reforms Shaping India Bullion Markets’.
The highlights of the conference are presented throughout this article.
IIBX: The Biggest Reform in the Indian Bullion Market
The India International Bullion Exchange (IIBX) is being set up at the Gujarat International Finance & Tec-City (GIFT City), Gandhinagar, Gujarat, India. GIFT City is the first Special Economic Zone (SEZ) of India set up exclusively for financial services. The International Financial Services Centres Authority (IFSCA) was set up in 2020 by the Government of India to regulate IFSCs, including GIFT City. The IFSCA is a unified regulator for all financial services SEZs to promote the marketplace, institutions and businesses in the banking, capital markets, commodity markets, insurance and pension sectors.
It is expected that all bullion imports into India will be routed through IIBX
The Hybrid India Gold Conference 2021.
IIBX is a consortium of five premier market intermediaries comprising three exchanges, namely NSE, BSE and MCX, and two depositories, NSDL and CDSL. In addition to IIBX (launched in January 2022), GIFT City plans to host a world-class bullion refinery. It is expected that all bullion imports into India will be routed through IIBX. Efforts are being made to reach out to significant bullion suppliers to India – global and regional bullion banks, the leading LBMA/DGD refiners and other non-bank overseas suppliers – to invite them to join the IIBX ecosystem.
Meanwhile, the Securities and Exchange Board of India (SEBI) is developing guidelines for establishing a gold spot market for the domestic tariff area. Both IIBX and domestic gold spot exchanges trade electronic receipts (ERs). Guidelines and rules are being formed to integrate IIBX and the domestic spot gold exchange system seamlessly.
Elaborating on these developments, Mr Injeti Srinivas, Chairperson, International Financial Services Centres Authority (IFSCA), the chief guest at IGC2021, said:
“Gold is a part of India’s culture and a way of life of every Indian. The sector employs six million people and contributes 1.5% of GDP. India accounts for 25% of global gold consumption. Above-the-ground stock held by Indian citizens is estimated at 25,000 tons. On the supply side, 1% is mined, 9% is recycled, while about 90% is imported. On the demand side, 75% goes for jewellery making, about 7% goes for making coins and 2% to 3% accounts for financial products. Thus, India is still passive in the global market despite strong demand.
“The government has developed a comprehensive policy reform for the gold sector. It’s time for the financialisation of gold. Bullion as a financial product was notified under the IFSC Act to unleash the full potential of gold and silver bullion.
“The International Bullion Exchange (IIBX) can help develop and support developments in the market. It can help in price discovery, supply chain integrity enforcement and promoting gold’s financialisation in a big way. Soon, there will be significant liberalisation in foreign trade policy in so far as gold is concerned, as I see it.
"We want to promote IFSC as a hub for refineries and vaults. Our vision is to develop IFSC as one of the most competitive ecosystems for gold. Everyone has to progress for the world to progress and for progress to be sustainable.”
Gold is a part of India’s culture and a way of life of every Indian. The sector employs six million peopleand contributes 1.5% of GDP
Mr Prithviraj Kothari, National President, IBJA said:
“The success of IIBX depends largely on the participation of buyers and sellers in the exchange. We must create an enabling mechanism for the participation of the international community. It is also essential for the domestic players to participate in the exchange within the permitted capital control regulation. IBJA would work closely with IFSCA in creating a world-class global exchange.”
The Hybrid India Gold Conference 2021.
Complimenting India for the reforms in the bullion space, Ruth Crowell, CEO, LBMA, said:
“During my address at an IBJA conference three years ago, I suggested that ‘India should make a business case that works for India and also brings the world to India’. So, I am very happy to see so many developments during the last three years leading up to the International Exchange for Bullion in India.
“When we meet at next year’s IGC, I hope to congratulate you on two developments. First, a second LBMA accredited gold refiner in India. Second, a bullion bank that participates in the LBMA gold price. It’s long overdue for India to have a seat at the LBMA table.”
It’s long overdue for India to have a seat at the LBMA table
Standard gold bullion imports into India to cross 1,000 tons in FY22
The second big talking point at the conference was a surge in gold and silver imports into India. Gold imports for the first 10 months of 2021 were about 830 tons. Many believe that most of the demand was on the back of three developments:
- Pent-up demand for gold jewellery for marriages and family functions (five months of extended marriage season during FY22).
- Stock market at a very high level and looking risky (although only 5% of Indians trade stocks) and Bank fixed deposits yield at an all-time low (with no insurance protection beyond Rs. 5 lakhs).
- The recent correction in gold prices by about 15% from their peak levels in INR terms, making gold affordable.
What about silver? It is expected that silver imports into India would touch the pre-COVID levels of 5,000 to 5,500 tons during FY22. This is on the back of renewed demand for silver from all three segments – industrial, jewellery and silverware.
The second big talking point at the conference was a surge in gold and silver imports into India
Digital gold platform providers recognise the risk and propose self-regulation
Paper gold products have also seen phenomenal growth. Sovereign gold bonds (SGB) of the Government of India mobilised Rs. 16049 cr in FY2021 alone as against Rs. 9608 cr mobilised in the five years between 2015 and 2020. As of October 2021, 83 tons of gold is subscribed under SGB.
The Government of India wanted to divert a substantial portion of investment demand for gold into paper form. It has succeeded in that effort through SGBs.
ETFs too grew substantially in 2020, with AUM at its peak, reaching almost 30 tons of gold. The number of portfolios grew over twofold. Product innovations happened too, with SEBI permitting ETF sponsors to hold up to 10% of AUM as derivatives.
Like-wise, Bulldex, a portfolio of gold and silver futures in the ratio of 75:25, and launched in 2020 by MCX, India’s largest commodity derivatives exchange, also witnessed a good response from portfolio managers seeking diversification.
Digital gold platform providers proliferated during 2020 when online deliveries picked up. The digital gold market, estimated to be around 3 to 3.2 tons during March 2020, grew by more than three times what some of the experts anticipated. Many believe that existing players should form a code of conduct and self-regulate.
The Government is also closely watching developments in the digital gold space
and is expected to announce some measures soon.
Digital gold platform providers proliferated during 2020 when online deliveries picked up
“WGC and LBMA are working together on ‘The Gold 247 Plan’. The key aspects of this plan are: (1) gold needs to uphold integrity; (2) physical gold should be fully accessible; and (3) gold should be fully fungible and be freely traded across the global markets.”Mr David Tait, CEO, WGC
Swarna Adarsh Abhiyaan launched formally
Emulating the Retail Gold Investment Principles (RGIP) initiative, WGC-India evolved a domestic version, ‘Swarna Adarsh Abhiyaan’, through an extensive industry consultation process. It is an industry initiative, which will be initially supported by WGC-India. A video campaign has been released recently nudging market participants to “walk the path of principled business conduct for sustainability and mutual progress”.
Professor Arvind Sahay, Chair, IGPC, IIMA, shared initial results of the pan-India survey on ‘Understanding India gold consumers’
“For the first time, India Gold Policy Centre (IGPC) has initiated a pan-India survey to understand Indian gold consumers. The survey intends to cover more than 40,000 participants from a larger sample frame of 175,000+ participants from across India and various demographic profiles.
"Due to the pandemic, the survey has covered only 27,000 participants, mainly
from northern and eastern India. Some of the interesting facts on Indian gold consumers derived from on the study so far are:
- About 15% of household savings go into gold.
- Better returns, low risk and simple procedures drove people to gold.
- Self-consumption is the most important reason to buy gold.
- Over 85% of consumers buy gold from a jewellery shop.”