MMTC to auction gold collected under monetisation scheme

The finance ministry has given stateowned trading firm MMTC the nod to begin the auction of gold collected under the much-hyped gold monetisation scheme (GMS). The ministry recently cleared an auction policy in this regard.

So far, over seven tonnes of gold is estimated to have been collected under the scheme, of which MMTC is expected to auction six tonnes, valued at ~1,700 crore at the current price.

Indications are that six tonnes of gold, mostly collected from temple trusts and households, will be available to MMTC for auction. “MMTC will soon initiate the auction process, and it will take about three weeks to conduct auction. The release of gold to the market will help reduce import dependency to that extent,” said an official.

The demand equivalent to gold auction is expected to impact the domestic price and premium as the season is lean. However, a fall in imports will ease the forex outflow to the extent of quantity of auction. Though the auction is open to all, mainly jewellers are expected to participate in it. Banks’ bullion desks may also take part to buy gold and lend it to jewellers.

According to the new policy, the gold received from people or temple trusts under the GMS for medium- and longterm deposits will be auctioned by the agencies notified by the government, and the sale proceeds will be credited to the government’s account held with the Reserve Bank of India (RBI).

Currently, the government is paying interest to depositors through banks, but gold mobilised is lying unutilised, adding to unnecessary cost. The money that will be raised by the auction will be treated as government borrowing, but initial cost will be a per cent per annum interest plus one time commission paid to banks.

However, the official quoted above explained that while the short-term gold deposits would go to manufacturing of (Ashok Chakra-embossed) India Gold coins by MMTC, the medium- and longterm deposits would be put up for auction. The depositors, households or institutions wanting to retrieve their gold after the term of their respective deposits will be returned the due quantity.

“The gold auction will bring in money for the government and banks, on which they will be earning interest. At the time of maturity of deposits, if any customer wants to take back gold, the government or banks can give it back to them procuring gold from the market at that point of time,” he said. Even if the market price at the time of maturity is much higher, it will not impact overall cost of government borrowing as gold’s share in the total borrowing is insignificant.

The GMS, which was launched in November 2015, offers investors annual tax-free interest of up to 0.6 per cent for short-term gold investments (up to three years), 2.25 per cent for the medium term (5-7 years) and 2.5 per cent for the long term (12-15 years). The interest is denominated in gold. The central bank maintains the gold deposit accounts (denominated in gold) in the name of the designated banks that will, in turn, hold sub-accounts of individual depositors.