 "Gold loses most liquid asset status")
Gold has traditionally been considered this country’s most liquid asset — at any time, people were prepared to give cash against it. After the demonetisation, that has changed.
Scrap gold dealers appear to be gradually shifting to cheque payment or net banking fund transfer. And, customers are not ready for this — selling against cheque means it shows in the account book and long-term capital gains tax is applicable. The concept of gold as an asset capable of getting anytime money is evaporating.
This payments revolution was taking place already but very gradually — even farmers had started moving towards the banking mechanism for sale of produce. Suddenly, however, there is no cash in the system. Scrap gold is usually defined as gold sold and money received. That market in India is 90-100 tonnes a year, according to World Gold Council (WGC) data. When gold prices are higher, the scrap supply rises, as seen in the June quarter this year.
If one includes the market for surrendering old gold or jewellery against buying new jewellery, then the scrap gold market is estimated at nearly 300 tonnes annually. According to WGC's demand trend report for the September quarter, “India is a very good example of the increase in recycling. With local gold prices in the vicinity of Rs 31,000/10g during the first half of the quarter, consumers – particularly in rural areas – opted to cash in, swelling the supply of recycled gold to 39 tonnes, its highest level since the fourth quarter of 2012. This boost to local supply enabled some jewellers to reduce their reliance on fresh imports to satisfy demand.”
Kapil Choksi of Choksi Arvind Jeweller at Zaveri Bazar here, who deals in old gold, said: “The business of old or scrap gold has reduced to a tenth of the usual business, as we are paying only by cheque and business is done when customers are prepared to accept cheque payment.” Earlier, his daily purchase was a kilo to 1,200 grammes of scrap gold; this has reduced to 100-200g a day. “The concept of gold as the most liquid asset has gone,” he adds.
A South India-based scrap gold trader said, “It is unlikely to revive the way it used to happen in the past. Especially when the value will be over Rs 2 lakh for old gold, scrap traders will certainly avoid dealing in cash. Those holding unaccounted gold will find it difficult to exchange easily, unlike in the past.”