All that glitters

That’s ironical, as India is the biggest gold consumer in the world — and only high net-worth investors take advantage of the options available with the gold futures market. The country’s favoured metal not only ranks as the most valued savings and investment vehicle but is the next preferred investment after bank deposits.

In reality, the only option for gold investment is to buy gold bars and coins from open market on which there’s an additional entry cost of 3 to 5 per cent. Not to forget the cost and risk involved in storage and insurance.

The latest in the long list of proposals seeking to tap the market for gold — three years ago, RBI had planned to allow banks to issue ‘Paper Gold’ which would be traded like shares — is the Budget 2005 proposal to allow mutual funds to float gold exchange traded funds.

But the regulatory framework appears to be taking time. ‘‘Mutual Funds will definitely bring liquidity to the market. But to really develop the futures market, there should be an active spot market. Mutual funds should be first allowed to invest in gold in the form of investment. And in gold futures market to enhance the returns on gold-related mutual funds,’’ says Kumar Jain, vice-president of Sri Mumbadevi Dagina Bazaar Jeweller Association.

As for the ‘paper gold’, stakeholders aver that while the concept has worked in developed countries, there’s a long way to go.

Suresh Hundia, former President of Bombay Bullion Association says, ‘‘These papers were supposed to be similar to NRI or RBI bonds. The value of these papers planned was for 100 gm valued at Rs 60,000. However, it will be difficult to float such low-value papers given the cost involved. It is too early to talk about pricing as everything is on the drawing board.’’

Adds Anjani Sinha, CEO of MCX, ‘‘There is a huge potential for gold futures trading in India, which has an annual physical market of around 700 tonnes. Last fiscal year, MCX recorded a cumulative turnover of 890 tonnes in gold.’’ During April 2005, MCX recorded an average daily trading volume of 4 tonnes of gold valued at around Rs 250 crore.

As the things stand, it’s going to be long wait for small investors to look at gold as an alternate investment to stock market or mutual funds.

However, considering the demand for more investment options and increase in disposable income, it is clear that small investors cannot be kept out for long.