The prices of the yellow metal touched four-year low at Rs 24,700 in July this year. The gold prices have corrected by about 12% this year from the initial level of Rs 28,000 in January 2015.
We Indians are famous worldwide for our insatiable demand for gold. Yearly, we import about 600-650 tonnes of gold. But most of it is for consumption purposes and not for investment.
So, a dip in prices is likely to be used as an opportunity to buy more gold. In the first quarter this year, the slight drop in prices as well as relaxation of import restriction, resulted into a jump of 22% in the demand for jewelry to 151 tonnes compared to 123.5 tonnes of last year, as per World Gold Council report.
As per estimates, there is about 20,000 tonnes of gold lying idle in bank lockers. Time and again government of India has tried to monetize this gold. In 1999, the government had launched Gold Deposit Scheme (GDS) to unlock the value of gold lying in households. The scheme didn’t find much favour among people due to its high minimum deposit requirement of 500 gms.
Also, people are emotionally attached to the jewelry and as by investing in such schemes, they will never get their original jewelry back, they are reluctant to invest.
In another attempt to unlock the value of gold, Government of India (GoI) has launched Gold Monetization Scheme (GMS) in this year’s budget. The draft guidelines are out for review. In order to bring it within the reach of more people, the minimum deposit requirement of the scheme is kept at 30 gms.
However, experts believe that the popularity of the scheme will depend on the interest rates that will be offered. RBI has left it on the banks to decide the interest rates. Listed below is the process and the key features of the scheme.
The Process for Gold Monetization
Gold monetization is a two-step process. The first stage involves purity verification of the gold. Once that is established, the second step will require you to open a gold savings account with the choice of your bank.
- Purity Verification of Gold: The collected gold will be sent to government-certified test centres known as Hallmarking Centers. Preliminary XRF machine test will be conducted to find the approximate amount of pure gold. If you agree to proceed, you will have to fill a Know Your Customer (KYC) form and give your consent for melting the gold. In case you disagree, you can take back your jewelry. The jewelry will be melted in your presence. If you don’t agree with the results you can take back the gold in the form of gold bars after paying a small fee. If you want to deposit the gold, the fees will be paid by the banks and you will receive a certificate issued by the collection center. It will also inform the bank.
- Gold Savings Account: When you will show this certificate to the bank, your “Gold Savings Account” will be opened and gold’s quantity will be credited into your account.
What is it in for me?
As a customer, the draft indicates the following benefits you can receive:
- Minimum deposit requirement: You need to deposit a minimum of 30 gms of gold under the scheme.
- Interest rate: Banks will have the discretion to decide the interest rates of gold loan. They are required to credit the interest earned on your gold deposit at intervals of 30 or 60 days. The interest paid on the principal will also be strictly valued in gold.
- Redemption: Whether you want to redeem your returns in gold or cash is entirely your decision. However, you need to specify it at the time of enrolment.
- Tenure: You will have to stay invested for at least one year.
- Tax Exemption: The scheme is likely to get the same tax treatment as gold deposit scheme (GDS). It will be exempt from capital gains tax and income tax (wealth tax has been abolished from this year onwards).