India Markets closed

Strategy for gold in India should be out of the box

In the famous battle of Chhittorgarh that took place in 1566-67, the Mughals under Akbar came up against the archers from the Rajputs under Rana Pratap. The Mughals were unable to bring their big cannons into play as the archers did not allow anyone forward who came in their range.

It required an out of the box idea of a secret tunnel and raised mud platform that finally allowed them to get the cannons in place to capture the fort. However, the Rajputs were not defeated as they merely shifted base to continue the fight against Akbar.

In the last few weeks, gold too is up against an impregnable defence of the $1,500 per ounce crucial level. Although, the yellow metal crossed the $1,500 per ounce level a few times in the last couple of months or so (even scaling $1,566 per ounce), it has not been able to consolidate its position for too long above that level. It has been pushed back quite repeatedly below that level in the last month or so.

Even though the geo-political scenario, economic outlook and the strength of the US dollar has not changed much, gold seems to be waiting for some trigger moment to propel itself to keep its date with the $1,600 per ounce mark as predicted by most market watchers now. Probably, gold too requires an out of the box solution to its current lack of momentum.

The prospects, though distant, of fruitful trade talks between the US and China, the recent Brexit agreement between beleaguered Boris Johnson of UK and the EU, toning down of the tensions between Iran and Saudi Arabia all seemed to give a boost to risk taking by investors in the markets. That in turn caused gold to be subdued.

However, the fact that gold failed to take advantage of a weaker dollar last week, the invasion of Syria by Turkey, continued tensions in Hong Kong, missile strike against an Iranian oil tanker, the uncertainty over US-China trade negotiations, the suspense over whether the UK parliament would pass the latest Brexit deal, various geo-political hotspots that continue to simmer underneath, all added to gold’s woes. The yellow metal ended the week hovering around $1,490 per ounce (London pm fixed 18-10-2019).

The Gems and Jewellery trade in India has a very bad image. Everyone in the trade (bullion dealer, jeweller, artisans, refiners, exporters, etc) are all viewed as smugglers, hoarders, cheaters, fraudsters, scamsters, defaulters, who evade taxes, deal in unofficial trade and so on.

The trust deficit between the gems and jewellery trade on one hand; and the customers and government agencies on the other is quite wide. The GJEPC (Gems & Jewellery Export Promotion Council) seems to have adopted a multi-pronged strategy to tackle various issues confronting the trade overall (mainly for exporters, and for the local markets as well).

The GJEPC has been holding banking summits for the last three years involving trade members, bankers, government officials and others. A co-ordination committee has also been formed to look into all aspects of banking finance for the trade.

A diamond policy guideline detailing the criteria for bank lending to the sector has also been formulated. This helps in the banks understanding the sector better. Even a jewellery policy is being formulated.

The KYC bank initiative by the GJEPC already has over 2,500 members in it. The aim is to get all members on board. It gives the bankers, trading partners and all in the trade a transparent system to check the credentials of a traders/member, etc.

GJEPC has also launched a `Parichay’ card scheme to map all the participants in the trade, including organised and unorganised artisans, etc.

Apart from that all the workers in the trade would be provided with insurance cover. Common facility centres for technological up gradation is on the anvil. Model workshops are being set up so that smaller players get the best of technology and equipment in various regions of the country.

Promotional activities for exports, through buyer – seller meets, shows like IIJS and promotion for consumption of jewellery in the local markets is also being undertaken.

The CSR activity, with its Jewellers for Hope annual dinner to raise funds for charity and the ongoing charitable activity of the trade too are being highlighted.

The council also remains in touch with government agencies, ministries, etc to put forth the views of the trade and get sops, concessions for the trade from time to time.

Meanwhile, with festival season of Diwali round the corner, demand is still poor. However, even if the price stabilises around current levels, one could see some demand for gold during Diwali.

A sustained upward trend could see investors flock towards gold as an investment option. In fact, the coming tranche of the Sovereign Gold Bond could see much interest.

Finally, despite the lull in gold prices, the odds seems stacked in favour of gold attaining $1,600-1,700 per ounce levels around the New Year. Although, gold is cautiously optimistic of achieving its goal, it is not over confident.

The author is an independent analyst of precious metals and diamonds,who has worked with GFMS and WGC.