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India Gold Conference 2022: IIBX, Domestic Gold Exchange And India-UAE Agreement Dominate Conversation

By Bullion World

India Gold Conference 2022, which saw the participation of over 500 delegates, concluded successfully on July 31, 2022 at the Grand Chola, Chennai. Three key topics dominated the conversation amongst delegates.

First, India International Bullion Exchange (IIBX). The conference coincided with the launch of IIBX by India Prime Minister Narendra Modi on July 29, 2022 at Gift City, Gandhinagar, Gujarat. Second, domestic spot gold exchange. The regulations on the domestic spot gold exchange have been prepared. Third, the UAE-India Comprehensive Economic Partnership Agreement (CEPA), operational since May 1, 2022. Under CEPA, import duty on gold bullion from UAE is 1% lower than other origins, up to 120 tonnes in the first year (2022-2023), going up to 200 tonnes in the fifth year. Likewise, there are customs duty concessions of up to 0.5% on silver bullion imports (without any quota restriction) for the current year.

Speaking at the inaugural function, Prithiviraj Kothari, national president, India Bullion & Jewellers Association (IBJA) said, “IIBX will bring in complete transparency in the way India imports gold. Domestic Spot Gold Exchange (DSGE) is a game-changer. It will trade Electronic Gold Receipt (EGR), one of its kind products that convert gold into security for perpetuity. EGR is a reversible product, provides for robust settlement system, deliverable at multiple delivery centres, facilitates goods recycling, promotes greater integration with financial market and assures delivery of certified goods. It would also give fillip to the Gold Monetisation Scheme (GMS)going forward”.

IIBX IS AN IMPORTANT MILESTONE FOR INDIA, THE ONE THAT REINFORCES INDIA’S POSITION AS ONE OF THE LARGEST MARKETS FOR PHYSICAL CONSUMPTION OF GOLD. BY LINKING JEWELLERS, THE EXCHANGE MAKES WAY FOR CREATING AN EFFICIENT MARKETPLACE FOR JEWELLERS TO ACCESS CERTIFIED METAL. IT IS ALSO THE FIRST TIME ANYWHERE IN THE WORLD, THROUGH PRE-FUNDED METAL AND CURRENCY ACCOUNT, THE IDEA OF SAME DAY SETTLEMENT (T+0) IS BEING ATTEMPTED.

– David Gornall, Senior Consultant, LBMA

IIBX is regulated by the International Financial Services Centres Authority (IFSCA), the unified regulator for financial services sector located in Special Economic Zones (SEZs) in India. Delivering his special address, Kamlesh Sharma, IFSCA general manager and head of precious metals, said, “Yesterday, we witnessed the historic launch of IIBX at the hands of our beloved PM Shri Narendra Modi. Now the real work starts. Forums such as the India Gold Conference provide an opportunity for us to learn about the industry and understand its expectations. We have begun with T-0 contract at IIBX. The introduction of Qualified Jewellers (QJ) framework is to bring disintermediation benefits. We do understand the role of banks. Very soon, we may see banks being permitted. We are fortunate to have a lot of foreign banks’ IFSC Banking Unit (IBU) already located in IFSC. These foreign banks, we believe, would soon become trading members of IIBX.

He added that IFSCA is also looking at providing remote access to some of the QJs that want to only do self-trading. One of the Indian banks’ international business unit has already joined as a Professional Clearing Member (PCM), and he hopes more Indian banks will join as PCMs going forward”.

On the international side, that is the supplier side, IFSCA is working hard to listen to them and enrol them as well, Sharma said. “We hope to see more foreign banks join in as trading members. We are looking at providing remote access to select suppliers, provided they comply with regulations on responsible sourcing and so on. We will soon come up with an SOP, hopefully by August end”.

With CEPA, Tariff Rate Quota (TRQ) holders will be granted QJ status. Going further, Sharma said he would like to see T+2 and the whole range of derivatives at IIBX. “We would also be having a consultation on the integration of accredited refiners in domestic tariff area (DTA) and the new refiners that may come up within the IFSC zone and so on. We plan to do all these things through continuous consultation and engagement with the industry”, Sharma said.

Ahmed Bin Sulayem, DMCC executive chairman and CEO, was the chief guest of the conference. Delivering his keynote address he said, “DMCC, when conceptualised, was a gold initiative. From inception, there has been a lot of participation from the Indian community – be it in technology, market development and in almost every field. We contributed to it. At present, three refiners operate in Dubai. There is soon going to be a fourth one. India leads the market when it comes to gold. It is an interesting industry here. And the industry is changing. You have heard about Uptown Tower. Dubai has changed too in the last 20 years. Twenty years ago, gold in Dubai meant coins and bars and was controlled by a few families. Today we have over 3,000 companies operating in gold, diamonds and precious metals inside DMCC”.

“The UAE-India agreement is just the beginning. I expect more to come. I would like to discuss forward product possibilities. With Uptown Tower, we have built a new foundation. We want to climb a new mountain. Gold is what DMCC started with. Gold is what attracted some of the designers to work on the project. We are here to engage. We are looking for a representative office in India. We have not decided where, may be in southern India or in Mumbai”, Bin Sulayem added.

Delivering his special address VS Sundaresan, executive director, Securities & Exchange Board of India (SEBI), the regulator of the domestic gold spot exchange said that gold imports into India increased from US$28.23 billion in 2019-20 to US$ 46.16 billion in 2021-22. Together, India and China have doubled their market share in two decades from 23% to around 46% of global demand.

“The launch of IIBX is a historic step. It will facilitate efficient price discovery, assured quality, responsible sourcing compliance, financialisation of gold in India, greater integration with other segments of the financial markets and establishment of India’s position as a dominant trading hub.”, Sundaresan said.

He noted that while IIBX is regulated by the International Financial Services Centres Authority (IFSCA), the domestic spot gold exchanges (SGE) will be regulated by SEBI. New and existing recognised stock exchanges would be permitted to set up SGE, and the framework for the creation of EGR, trading of EGR on stock exchanges and conversion of EGR into physical gold has been developed. “Provisions have been made for fungibility and interoperability of EGRs between vaults. All existing branches of the vault managers are allowed as withdrawal centres. Storage and withdrawal charges will be levied by the vault manager and will be collected by the depository. Clearing Corporation will empanel assaying agencies. Investors can organise their own trusted transportation for movement of gold from vaults to their preferred location. In so far as SGE and EGR are concerned, SEBI is working more as a market development organisation”, he added.

Views On Gold Price Outlook

In 2022, gold prices got support from the ongoing conflict in Russia and Ukraine, the trade restrictions on Russia and the increase in the price of all major commodities – crude oil, natural gas, copper, grains, edible oils etc., leading to record high inflation. High inflation, we believe, will remain for at least one more year. Gold price is caught between high inflation and recession.
Prithiviraj Kothari
National President, India Bullion & Jewellers Association

Gold price has been on the upswing since 2016 until recently. For this upmove, there has to be a healthy correction, which in my view is 50% retracement. I expect gold to gradually correct towards US$1,550 per troy ounce soon. Of course, no market moves in a straight line; there may be a temporary upmove. I see gold market consolidating between US$1,850 and US$1,550 per troy ounce in the next year.
Debajit Saha
Lead Analyst Precious Metals, Refinitiv

On gold price outlook, recessionary concerns could limit downside in gold prices, while a U-turn on hawkish stance could push gold higher.
Chirag Mehta
CIO, Quantum Asset Management

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