India is the second-largest buyer of gold across the globe. Thus, the changes in demand patterns from the country may likely have an impact on the prices of gold. Gold futures on COMEX, a commodity division of the New York Mercantile Exchange, has lost 1.9% on a YTD (year-to-date) basis. Silver futures have marginally gained 0.64%. Whereas, platinum and palladium fell by 17.5% and 13.4%, respectively. The Reserve Bank of India has announced the standards for a gold monetization scheme. Such a system may curb the import demands from the country. The approximated figure stands at ~900 tons annually, according to information posted on the Gem & Jewellery Export Promotion Council’s website.
India’s retail gold investors show gold hoarding behavior, where tons of gold are at people’s disposal, either in their homes or bank safe lockers. The estimated figure held by individuals or trusts is close to 20,000 tons. The move will also likely cut the current account deficits for India, as gold imports constitute a significant chunk. Gold enthusiasts under this scheme can earn interest on the amount deposited with the government. Rather than putting up gold in safe deposits, investors can opt for an interest-bearing gold. Such a provision can likely convert gold from a non-interest bearing asset to an asset comparable to other assets like bonds and equities. The principal and interest of the deposit under the scheme will be denominated in gold.
The scheme may affect the physical demand for gold. Further, the overall gold demand may also influence the price of gold-backed ETFs like the SPDR Gold Shares Trust (GLD) and the iShares Gold Trust (IAU). The three stocks AngloGold Ashanti (AU), Agnico Eagle Mines (AEM), and Barrick Gold (ABX) make up 16.1% of the VanEck Vectors Gold Miners ETF (GDX).