India questions London gold benchmark

IBJA raises concerns about LBMA's price fixing mechanism, says it doesn't match realistic prices in India

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India has said it is setting its own gold standard, being among the largest consumers of gold historically.

The Indian Bullion & Jewellers’ Association declares opening and closing gold prices daily based on which sovereign gold bonds are priced. The London Bullion Market Association fixes gold’s opening and closing prices internationally.

Addressing a seminar in Mumbai, IBJA President Mohit Kamboj said the London Bullion Market Association quotes did not match prices in India. Ruth Crowell, chief executive officer of the London Bullion Market Association, reacted to this observation stating, “Whether it is the Indian gold standard or London gold standard is a matter of deliberation. The industry need to sit together to make it happen.”

Kamboj said gold prices in India between 2013 and 2015 had been quoting at a premium to the landed cost and over the last six months they were at a discount to the international price. These variations were not reflected in the London Bullion Market Association’s mechanism to fix the price of gold, he added.

“The government decides the tariff value for gold and silver on which import duty is levied. This value is derived from a formula that takes into account the London Bullion Market Association’s price,” said an analyst tracking bullion.

“Indian prices are currently at a discount but the tariff value is decided on a wrong benchmark. Importers use this for arbitrage,” he added.

Kamboj also said bullion was considered a demerit asset in the Indian economy and there was a need to turn it into a merit asset. The government has made a beginning by issuing sovereign gold bonds and launching the gold monetisation scheme. Also, the Bureau of Indian Standards is finalising benchmarks for gold that every registered refinery will have to meet.

Prithviraj Kothari, managing director of Riddhi Siddhi Bullions Ltd, said, “Sourcing of responsible gold is essential for the industry. We are doing our bit, but the government should stop the entry of unofficial gold into the country.” The UN has standards that require government checks on import of illegally mined gold.