India's Banks Follow China's Lead Toward Expanding Gold Market

Recently, China began looking at ways of internationalizing its gold market, and since then banks in India have also made it known to their central bank, the Reserve Bank of India, that they are seeking permission to buy back gold from investors. These trading rights would be in addition to the role they currently maintain of primarily importing gold with the express purpose of selling it directly to jewelers and retailers.

From Mineweb:

“India’s central bank has permitted certain banks to import bullion on consignment basis for domestic jewellers and exporters but they do not stock gold. And, while a couple of the nominated banks authorised to import gold, sell gold coins at a premium of 10% to 15% over the market rate but, they are not permitted to buy back the gold they sell.

“Among their proposals, Indian banks have asked for permission to invest in gold exchange traded funds a move which is hoped will boost the trading of gold in demat and securitised forms.

“Incidentally, banks and agencies such as the MMTC (Mines and Metals Trading Corporation) account for nearly 80% of the country’s gold imports.”

Were the banks to be granted these rights, the gold market would likely expand accordingly. The article provides additional perspective on how important the Indian gold market is, and how quickly it’s already growing:

“During the last quarter of 2009, however, demand for the precious metal increased 84% in India. The country already accounts for over 20% of the world’s gold demand. Similarly, in the first quarter of 2010, India was termed the strongest performing market by the World Gold Council, as total consumer demand surged 698% to 193.5 tonnes. Indian jewellery demand rose 291% to 147.5 tonnes during the same period, the Council said.”

The gold market-related developments in these two emerging BRIC economies are worth watching closely. You can read more details in Mineweb’s coverage of how India is following suit as China pushes to expand its gold market.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning