Showing posts with label Gold. Show all posts
Showing posts with label Gold. Show all posts

Saturday 15 January 2022

Gold import duties, smuggling and gold seizures

In February 2021, India's Finance Minister announced cut in import duties on gold from 12.5% to 7.5% albeit effective import duty remained 10.75% after imposition of various cesses, surcharges and a 3% GST.. ThePrint’s Editor-in-Chief Shekhar Gupta explains what the small cut in import duty tells us about the Indian political system’s fatal attraction for bad policy.



On 13 August 2013, the Indian government had raised gold import duty from 6% to 10% which was further raised to 12.5% on 5 July 2019. For taxes and gold import duties over 12.5% gold smuggling becomes a lot more profitable than imports creating a very strong incentive for the grey markets to constantly undermine all reforms to make gold liquid and mainstream according to the World Gold Council. India has had a significant history of seizure of smuggled gold which is directly proportional to the amount smuggled rising from 207% from 2016 to 2020. Nearly 70% of total gold seizures made in 2020-21 were of Myanmar origin. Only about 13% came from the United Arab Emirates.

According to Gupta, in the past, gold was smuggled in large quantities as it funded all of India’s underworld and corruption — bureaucratic corruption, customs corruption, judicial corruption as well as terrorism. “Gold is a sink for black money. One way to clean up gold was to open its imports. Second was to reduce or withdraw all duties so that the margin was taken away. And third was to improve India’s foreign exchange rules” Gupta explained.

Friday 7 January 2022

Improved Gold price discovery may lead to even higher imports into India

Qualified Indian gold jewelers and bullion dealers are now authorized to buy gold bars and coins directly via imports from the India International Bullion Exchange (IIBX). At present, gold imports are allowed only through Reserve Bank of India nominated banks and India's Directorate General of Foreign Trade licensed entities such as the State Trading Corporation (STC) of India to import gold in the form of the more popular 100 gm and 1 Kg bars with 0.995 (67%) and 0.999 (33%) purity, for Indian traders or jewellery manufacturers on consignment basis. Gold officially shipped into India comes via air into 11 cities as well as a Free Trade and Warehousing Zone (FTWZ), located in the town of Satyavedu. Indian gold imports have continued to rise despite high import duties with official imports averaging 760 tonnes per year since the first hike in 2012. In 2016-2020, imports made up 86% of India’s gold supply while recycling accounted for 13% and mining accounted for just over 1%. Since the first duty hike in 2012, India has imported some 6,581 tonnes of gold - rising from $37 billion worth in 2018, 377 tonnes in 2020 reaching a record $55.7 billion in 2021 buying more than double 2020's tonnage, as a price drop favoured retail buyers and pent-up demand emerged for weddings that were delayed when the pandemic first hit.
The ownership of the imported gold vests with the overseas exporter until its agent in the country (e.g. authorized banks) sells it to a domestic buyer. The banks and other agencies get a fee from the exporter for handling and storage and also add a premium to the gold while transacting with the domestic buyers. The buyers pass this premium on to the value chain until it reaches the end customer, who has little knowledge of the gold’s price discovery with price quotes for the gold across the country being opaque. The premium charged was up to $1 an ounce over official domestic prices in January 2022 (inclusive of 10.75% import and 3% sales levies) as opposed to $5 discounts in December 2021, which were the largest in five months.

Tuesday 4 January 2022

Spot Markets in Coal, Electricity and Gold on the horizon in India to coincide with privatized coal mining and gold refining

Spot trading in Coal is on the horizon according to the Securities and Exchange Board of India (SEBI) to coincide with commercial coal mines becoming operational in this decade when 40 per cent of the coal in India will be mined by companies other than State run monopoly Coal India Ltd. India's coal imports have increased largely because of demand from new power plants which are designed to use only high grade imported coal.India imported 215 million tons in 2020-21 mostly from Australia, South Africa and Indonesia. Anil Kumar Jain, India's coal secretary, said in October that the country plans to eliminate imports of thermal coal by 2024.
India’s rush towards renewables is projected to boost trading on the energy spot market to more than quadruple in two years, according to Bloomberg. The share of power under long term contracts is expected to drop between 50 to 60 percent in the next few years.

In a separte report from the World Gold Council (WGC), titled Bullion Trade in India, part of a series of in-depth analyses on India’s bullion market, increasing import of gold doré — a semi-pure alloy of gold and silver — in the last few years has led to a massive expansion of gold refineries in India. The number of refineries rose from 3 in 2012 to 32 in 2020 with a combined refining capacity of 1,200- 1,400 tonnes. Of these, 23 refineries imported doré in 2020 and the top five refineries accounted for more than 70 percent of India’s doré imports.
According to WGC, bullion banking is one of the key pillars to address multiple challenges faced by India’s gold market, such as a lack of quality assurance, the unorganised state of the market and a lack of trust in international markets but with bullion banks like Bank of Nova Scotia exiting their precious metals business and many large bullion dealers (previously clients of the banks) setting up their own refineries, banks’ share of official imports shrank from 40 percent in 2017 to 19 percent in 2020 as the business shifted to refineries.

Monday 3 January 2022

Gold imports continue to rise (and shine) in the world's second largest gold consumer market

India imported gold worth $34.6 billion in 2020 against $28.2 billion in 2019 with Swiss gold imports accounting for almost half at $16.3 billion. According to Bloomberg, India's gold imports at 900 tons in 2021, up from 350 tons in 2020 are set to be the highest in six years:
India is the world’s second-biggest gold consumer and imports almost all the metal it consumes with the World Gold Council has estimating that sales in the peak October to December period to be the best in at least a decade. The Securities and Exchange Board of India has allowed setting up Gold Exchanges from 2022 where trading in the form of electronic gold receipts (EGRs) at the excahnge is expected to help with a transparent domestic spot price discovery mechanism. The denomination for trading of EGRs and conversion of an EGR into gold is left to the exchanges but EGR trading will be subject to securities transaction tax and goods and services tax.The Directorate General of Foreign Trade issues license to entitities such as the State Trading Corporation (STC) of India to import gold in the form of 100 gm and 1 Kg bars with 0.995 and 0.999 purity, for Indian traders or jewellery manufacturers.

Friday 19 April 2013

How to use the downfall of gold to your advantage


Already invested in Gold and don't know what to do? A number of options are available depending on how you are invested in Gold. If you have physical Gold - coins, bars, medallions, etc. - do nothing. In this instance you are using physical Gold as a holder of value and that's what it will continue to do albeit not as much value as before. If you have Gold in the form of shares in a Gold or Gold underpinning fund, best to move this move fund into a retirement account as a diversifying asset class to your retirement portfolio. In any case there is no need to panic and sell on the downturn.

Thursday 18 April 2013

Mr. Goldfinger gets bitten by Mr. Market


In the classic James Bond film "Goldfinger", the villain (Mr. Goldfinger) professes his love for the yellow metal (see video clip) and claims to get to into any enterprise that will increase his stock. There have been many such Goldfingers who were happy to ride the price wave of Gold until the massive drop of over 9% this week shattered their confidence in the yellow metal. Many of my clients have sent me panicky emails asking if they should dump the metal. Gold is only a holder of value and does not give dividends or interest, so when this perceived value is lost, pandemonium is primed to ensue. The best strategy is to wait out the downturn and do absolutely nothing. Perhaps the classic dialogue between James Bond and Mr. Goldfinger can be reworded thus: "Do you expect me to Sell?". "No, Mr. Bond, I expect you to Hold".

Monday 8 April 2013

Will the obsession with Gold end in losses?


Ian Lyall, a former City News Editor at the Daily Mail has asked if Gold has finally lost its lustre? The article ends by citing a number of analysts who believe that Gold is bound to bounce back. Indians are one of the top buyers of the precious metal and the Indian obsession with the precious metal as a holder of value is legendary. Many investors jumped on the gold bandwagon when it hit the US$1900s in fall of 2011 and now  are regretting the purchase now that the metal has dropped to the US$1500s.



I believe that global economic uncertainty and quantitative easing programs of Central Banks are bound to heat up the demand for Gold in the short to medium term. My take on this correction is: if you have Gold in your portfolio keep it, if you do not have Gold, the current dip offers a buying window to give your portfolio exposure to the precious metal.

Thursday 4 April 2013

Don't get Cyprused - cardinal rules for protecting your assets

Cyprus bank customers with assets exceeding € 100,000 will be taxed with 37.5 % as reported by Friedlnews. BBC further reports that big savers could effectively loose up to 60% of their savings. Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs. The other 40% will attract interest but this will not be paid unless the bank performs well - a very unlikely scenario. This seizing of a large chunk of depositor assets by a Government can happen just about anywhere - Cyprus is only the unfortunate canary in the financial coal mine. I have a few cardinal rules to protect assets in the long term which savers will do well to heed:

1. Return "off" assets is more important than return "on" assets - In other words attractive looking assets such as cloud computing equities may do well in the immediate short but they are getting to be bubbles of massive proportions - so best to stay away.

2. The Euro is effectively a currency on life support and not tenable in the long term - avoid investing anything in Euros or Euro denominated market instruments. The story of Cyprus is likely to get repeated in other Euro zone countries over the medium term.

3. Gold is a good holder of value in the medium term but unlikely to do well over the long term.

4. Isle of Man or the Channel Islands are quite possibly the safest jurisdictions for holding assets compared to other offshore jurisdictions for cash assets as well as from a tax perspective.

5. It is very prudent to have some of your non cash assets invested in real estate, farm land, water resources, food commodities and energy.