Experts seek uniform global gold pricing

The government should take efforts to make the gold prices uniform for easy and transparent trade in the domestic market, consented speakers at the 3rd India International Gold Convention 2006 in Mumbai on Friday.

Analysts attending the meet demanded that international agencies like the World Gold Council take sincere efforts to come to an uniform global price for the yellow metal for its smooth and transparent trade throughout the world.

The future of gold trade in India would be determined by the consumption pattern in "rural India and the rural economy", speakers said at the convention that attracted about 300 participants from nine countries, including India.

Rural India consumes approximately half of the country's entire gold jewellery consumption, which, in turn, accounts for around 52 per cent of total domestic gold consumption in all forms.

The Indian consumer, however, "needs to be educated about futures trading which is going to be the main driver of gold trade - through delivery or exchange traded fund", said Bhargav Vaidya, partner at B N Vaidya and Associates.

With an amendment to the Forward Contract Regulation Act on the cards, banks, mutual funds and foreign institutional investors would be allowed for trading in commodity markets very soon, and only then the real growth in the trade of precious metals would be seen, said Jignesh Shah, MD and CEO, Multi Commodity Exchange (MCX), said in his opening remarks.

Precious metals and energy contribute about 85-90 per cent of daily turnover at MCX, gold prices of which are closely linked with the prices at the New York Mercantile Exchange and other leading bourses in the world.

About 60 per cent of total commodities trade is shared by the three aforesaid institutional investors. Once they are allowed in India, the trade here would also see a dramatic boost, he added.

In the free trade era, overseas investors are pumping in huge money in developing countries like India, and commodities are just attracting their fresh attention for better liquidation similar to the international markets.

International commodities like precious metals and energy need to be opened for trade for institutional investors, Shah said. India, being the largest consumer of gold at 850 tonne, can well be the price-setter rather than a price-taker as it is at present.

"Why to depend upon the international market once the major consumption is here?" asked one of the participants.

Meanwhile,Gold prices drifted higher on Wednesday to trade in a tight $5 band, with investors watching oil and currency markets for direction, dealers said.

Gold rose as high as $625.25 an ounce before retreating to $624.70/626.20 by 1013 GMT, against $623.70/624.50 in New York late on Tuesday, when it hit a high of $628.50.

"I don't expect a huge amount of movement until we are back from holidays in September," said Simon Weeks, director of precious metals at ScotiaMocatta.

"Despite the physical interest that came in at the lower numbers, there still seems to be a lot of metal around and (there are) not enough buyers to take up that excess liquidity."

Traders said short-term price moves would largely depend on changes in oil prices and the dollar, while the situation in the Middle East would be keenly watched.

The euro staged a modest recovery against the dollar after falling sharply in the previous session when a closely watched German ZEW business sentiment index hit its lowest in five years.

Gold has been 'shining' ever since contracts were introduced and, currently, it is contributing anywhere between Rs 3,500 crore and Rs 6,000 crore to the daily turnover of derivatives exchanges.

At present, the turnover of gold alone is close to the total Nifty turnover. Further, the turnover of gold alone is far ahead of the aggregate turnover of some blue-chip companies, he added.

On the co-relation between futures and spot, Joseph Messey, deputy managing director, MCX, said a spot exchange would become a reality very soon, where consumers would be able to trade for delivery while in a derivatives exchange they would be able to hedge the future risk.

In fact, domestic commodity trade is passing through a transformation where precious metals are offering huge trading opportunities.

Comexes have opened up immense trading opportunity for domestic traders through international linkages, and intermediaries must upgrade themselves to facilitate their members making most of this opportunity, Messey added.