Gold monetisation may do better than expected: UBS survey

Large portion of respondents not resistant to idea of temple gold also being deposited

Gold schemes, including the monetisation schemes launched on Thursday, might yield better than expected results, according to a UBS survey.

“A significantly large proportion of respondents are likely or highly likely to participate in the govt’s GMS (gold monetisation scheme) and are not resistant to the idea of temple gold also being deposited. This suggests that the scheme has the potential to perform better than previous initiatives which is not in line with current consensus expectations.”

Gold monetisation scheme being implemented through banks, is aimed at mobilising idle gold in the system and use that gold for productive purpose and avoid imports.

Deposits will fetch less than one% returns for short term but for medium and long term he will get interest of 2.25 to 2.5% per annum. In most circles fears were raised about success of monetisation scheme but UBS says that the response would be better than anticipated.

Indians directly or indirectly hold an estimated 22,000 tonnes of gold ($800 bn or 39% of Indian GDP). Incremental gold demand in India is largely met by imports (1.7% of GDP in FY15), driving current account deficit (1.4% of GDP). Government has announced plans to facilitate deposit of gold as well as a gold bond, to hopefully monetise it into more productive use and also curtail imports.

UBS survey said “nearly 50 per cent of respondents were ‘likely’ or ‘highly likely’ to deposit gold/gold jewellery.” It also said awareness was quite high. 80 per cent of respondents surveyed were aware of the schemes.