Virendra Sehwag smashed an eye-popping 195 on the first day of the third test against Australia in 2003. India ended the day well over 300 runs for the loss of just four wickets.
India was seemingly in the driver’s seat after being 1-0 up in the four test series. It seemed with the test match almost safe, India would win a test series for the first time in Australia.
However, on the second day, Indians lost the plot and were bowled out for 366. Australia took charge as they scored over 500 runs in the first innings and ultimately won that test match by 9 wickets.
The Indians thought too far ahead and failed to consolidate their position on the second day, therein lies the moral of the story. Gold too seemed to have learnt a bitter lesson as it crashed from around $1,509.45 per ounce on November 4th to below the $1,450 per ounce level on the 12th of November.
Gold’s inability to consolidate its gains has been the bane for the yellow metal ever since the current year’s rally took it well over $1,566 per ounce not so long ago.
The recent downfall for the yellow metal was fuelled by news that the US and China were close to a trade agreement and there was also news that both the countries would roll back their tariffs that they had raised during the trade war.
That caused the stock markets to rise and the US dollar to strengthen against most currencies. With all the global hotspots in suspended animation (aka the Maharashtra state assembly) and no adverse data on the economy in the US and worldwide, gold found no support to prop it up.
Even Trump’s assertion that he would not roll back on tariffs and Fed chief’s view that monetary easing have come to stay failed to cheer up gold.
The Trump impeachment proceedings going public too had no impact on the gold price. The yellow metal ended on Friday at $1,466 per ounce (London pm fixed), though the New York closing was marginally better at $1,468.90 per ounce.
In Mumbai, gold was in a narrow Rs.600 per 10 gms range, mainly because of the weaker rupee and ended at Rs.38,246 per 10 gms (IBJA rate) on Friday the 15th of November.
Meanwhile, the much anticipated new policy on gold is yet to make its formal appearance. Quite suddenly it is apparent that the reform agenda on gold is stalled for quite some time now.
In the past, successive governments have stated that they wanted India (read Mumbai) to become the Gold Hub (some say, the Financial Hub) for the region, say, between London and the far-east.
However, is that mere sloganeering? Like the slogans made by some politicians that they would convert Mumbai into Shanghai, Singapore, etc.
For, if it was indeed the case, then are our rules, regulations, laws, tariffs, etc synchronised with this avowed goal? In gold, should Mumbai really become like the LBMA, then the metal would flow in huge volumes through the hub just like in London.
The earnings for the hub would be for services rendered. That alone could far exceed the earnings made by way of high import duty and GST. Moreover, if the import duty is at reasonable levels the parallel trade would hit a huge road block.
Unofficial trading in gold could decrease sharply. Remember, the time when the duty on gold was Rs.100 per 10 gms of gold in metric weight of pre-numbered bars, then, hawala was almost negligible and unofficial trading in gold almost zero.
From time immemorial successive governments have kept India’s tariffs rates and restrictive policies on gold at such levels that they only helped centres like Dubai, even Hong Kong as well as Singapore to flourish at our expense. Probably, now the current tariffs and policies aim to benefit our immediate neighbourhood.
Finally, India’s success story in export of diamonds is well documented and proclaimed by all from rooftops. How with zero mining of diamonds, India has become the largest exporter of cut & polished diamonds to the tune of over $23 billion in FY19.
Gold jewellery exports were around $12 billion during the same period. While we have allowed diamond manufacturing in the domestic tariff area with low or zero import duty, duty free gold is allowed only in SEZs.
The replenishment scheme for export of gold from the domestic tariff area too was discontinued for a few years. Even otherwise, gold is not easily available for exporters.
Probably, lower import duties could help boost India’s gold jewellery exports from the DTA as well. Something to ponder about for the Gold Summit in Delhi next weekend!
The author is an independent analyst of precious metals and diamonds, who has worked with GFMS and WGC.
