Government revamps gold monetisation scheme to unlock tonnes of unused gold in india

Monetisation Scheme

The government on 9th February 2021 launched a revamped Gold Monetisation Scheme that seeks to unlock an estimated 25,000 tonnes of idle gold lying at Indian households, involving jewellers, and making all state-run banks participate in it.

Following are the key highlights:

  • All Public Sector Banks shall be advised to participate in GMS and at least one third of the public sector bank branches in all towns will have to provide the revamped gold deposit scheme on demand with special designated officers.
  • Minimum deposit under the scheme has now been reduced to 10 grams from earlier 30 grams
  • Banks will be allowed to buy standard gold bullion from BIS/NABL certified refineries implementing LBMA or India Good Delivery Standards (IGDS) notified by BIS. Banks will be allowed to import gold via IFSC IBE Platform and domestic gold spot exchanges, as and when these exchanges are operational.
  • The government will also request the private sector banks to participate in the revamped Gold Monetisation Scheme (GMS) that will incentivise participating jewellers. According to the revamped GMS, in the first stage, issue of medium-term gold deposit (MTGD) and long-term gold deposit (LTGD) certificates by banks will be moved to a secure digital platform, to be developed by State Bank of India. Thereafter, a regulated securities depository will be designated by SBI to hold the certificates in a digital demat format. GMS security will be tradable in market. Banks will be permitted to provide loans against MTGD and LTGD certificates.
  • Jewellers will be encouraged to set up BIS-approved collection and purity testing centres (CPTCs) under the scheme. Participating banks and refineries will take steps to enter into agreement with sufficient number of CPTCs so that GMS can be offered in significantly larger number of branches.
  • Banks will continue to be paid the commission of 1% as incentive and handling charges of 1.5% if all services are provided by banks as are being provided by them at present. However, in case gold hand1ing/ mobilizing services are provided by the registered jewellers the Banks shall pay a maximum of 1.5% as incentive/handling charges to the mobilizing agents for the functions performed by them.
  • Banks will be allowed to buy standard gold bullion from BIS/NABL certified refineries implementing LBMA or India Good Delivery Standards (IGDS) notified by BIS. Banks will be allowed to import gold via IFSC IBE Platform and domestic gold spot exchanges, as and when these exchanges are operational.
  • Gold mobilised under MLTGD will be used for leasing to banks for online lending under GML. Repayment of GML in lots of I KG will be allowed by all participating banks. All Public Sector Banks participating in GMS, will offer GML using GMS bullion leased from SBI.

The scheme is a win-win for all as it will unlock tonnes of unused gold in India. The involvement of jewellers to run GMS scheme shall make the entire scheme consumer-friendly and will benefit jewellers in big way. The government’s decision to include jewellers as Collection and Purity Testing Centres (CPTCs) and the introduction of SoP for retailers on how to operate under GMS is a welcome move.

This will not only benefit the consumer, retailer and banks, but the nation as well. The dependency of gold import will come down significantly as there will be local gold metal in the system. Gold import in the next 3 years will gradually reduce by 30 per cent, which will help the country with current account deficit.

Global Cues

In the absence of significant macroeconomic data releases and fundamental developments, the sharp decline witnessed in the US Treasury bond yields weighed on the USD and allowed Gold to gain traction during the first half of the week.

While speaking at an event on Wednesday, FOMC Chairman Jerome Powell reiterated that the Fed remains committed to providing support to the economy. Powell noted that they will not look to tighten the policy solely in response to an improving labor market and reiterated that the policy rate will be kept near-zero until they reach employment and inflation goals.

A gauge of the dollar headed for its largest weekly decline in 2021 while global stocks fluctuated Friday as measures of economic activity painted a mixed picture of the global
recovery. Jobs data released Thursday underscored an uneven labor market revival in the U.S. Inflation expectations, bolstered by hopes for a fast-tracked U.S. stimulus package, helped bullion rebound early this week from its lowest this year.

Still, there are signs of investor doubts about the durability of the gold rally. Gold swung between gains and losses on Friday, and holdings in exchange-traded funds backed by the metal have recorded five straight days of outflows.

Technical view

Gold prices have broken down the symmetrical triangle on weekly chart strongly, next support of Rs 46500 (38.2% retracement) and Rs 43650 (50% retracement). There is inverted hammer candlestick formation on weekly charts, which suggests, prices will continue its downtrend next week.

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