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Gold local market price now at a discount to imported gold. Here's why

17 September 2020


Gold prices in the local market, over the last two months, has been at a discount to imported gold as scrap trade (sale of jewellery for cash) in the yellow metal has increased amid the rally in the yellow metal. As many individual are facing job loss and cash crunch due to the covid-induced lock down, the pan-India scrap trade has gone up to 25-30 tonnes in the September quarter, double the 13.8 tonnes reported by the World Gold Council for the June quarter, when there was restricted trade.


According to a report in the Economic Times, a lot of gold that were bought on the night of Demonetisation, is now being sold in the market. Many people who had bought gold on the night of November 8, 2016 to launder unaccounted cash, are now selling them in the market, the publication mentioned.


Worth mentioning here is that within weeks after demonetisation of old 500 and 1000 rupee notes was announced, more than Rs 5,000 crore of gold jeweller and bullion were believed to have been purchased using the banned currency. Overnight, gold prices shot to Rs 40,000 (per 10 grams), from around Rs 24,000 as buyers rushed to salvage their cash.As gold prices are now above Rs 50,000 per 10 grams, those buyers, stuck with the gold till now, are selling in the local market, the business daily mentioned citing three person aware of the transaction. Since the end of July 2020, gold price is hovering around Rs 50,000 and touched a new high of Rs 55,901 (excluding GST) on August 7, 2020.


The sale of ‘DeMo gold’, along with a combination of other secondary market sales — primarily under duress — has placed the price of gold in the local market at a discount to the price of imported gold.Amit Modak, CEO of PN Gadgil & Sons, with presence in Maharashtra, Karnataka and Gujarat, told ET that scrap sales across his 29 stores had jumped 25% year-on-year. (However, they were not aware whether part of the secondary sales comprised of gold bought during DeMo.)


In the years after DeMo, several individuals received notices from the I-T department, questioning their source of funds. Interestingly, notices were also received by some of the regular customers who had not bought gold on the night of November 8, 2016 — probably because some of the jewellers had shared PAN of these clients either due to non-availability of PAN of actual buyers or to protect their identity, and keep tax officials at bay.



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