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Economy Dec 27, 2013

Why India, China should cartelise and tame global gold market

By Firstbiz Editors

The rising smuggling incidents prove that Indians are least bothered about Finance Minister P Chidambaram's moral suasion on gold. The only way out for the government is to contain the country's penchant for the yellow metal.

Reuters

Reuters

In an article in The Hindu BusinessLine today, S Gurumurthy has spelt out a solution for India's gold conundrum.

He says as the largest the buyer of gold, India should devise a strategy to impact the global gold prices. For this, the country should create a 3,000 tonne buffer of the unornamented gold (used for investment) which will help it cater to the local demand.

In order to create this buffer, the government should issue "bonds to be subscribed by gold holders in India, returnable to them as gold on maturity", he says.

Once this is done, India can even join hands with China, which is gearing up to take over India as the largest gold buyer, to act a cartel and bring down the gold prices in the international market.

"India can force down the gold prices, plan ahead and buy and add to its strategic stock of gold. The more the buffer stock, the more will be India's capacity to handle the world gold market," the article says.

The build-up will also help the country to manage its current account and also the rupee with more confidence.

The article also points out the likely obstacles to the project. For one, most of the gold holding in India is unaccounted and secondly, people will not trust the government with their gold.

To overcome this the government will have to adopt a carrot and stick method that would encourage people to disclose their gold holdings.

For all this, what the authorities need the most is guts and political will.

Is anybody listening?

You can read the excellent article here.

by Firstbiz Editors

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