Banks Change Tack On Gold Imports Switch To Deals On Consignment

Commercial banks licensed to import gold are preparing to source the yellow metal on a consignment basis, wherein no purchase price is struck up front, to hedge against future volatility in domestic prices.

The banks said that though they did not burn their fingers in bullion operations during the past month which was characterised by a steady fall in prices, the move is to ensure complete insulation from price fluctuations.

We are planning to import gold on a consignment basis. There will be no price fixed on these consignments.

It will involve only a physical transfer from the suppliers to our vaults. The price will be decided when the buyer comes in and the deal is struck.

 

We will then pay our suppliers abroad. So there is no exchange risk or price risk here,said an official at the gold desk in a foreign bank.

He pointed out that the slide in domesic gold prices, triggered by the Reserve Bank of India decision in October to free import restrictions, has not affected the bank. We have struck a couple of deals and we have made money. He said the bank breaks even on an a minimum import volume of 600-800 TT bars per chest per shipment.

A bank official explained why the banks did not lose money when prices declined: First of all price movements were quite gentle and the risk was manageable. Most banks maintained a 24-hour exposure. They place the order today, the gold comes in the next day and is disposed off.

But the official confirmed that with imports being freed, domestic prices are vulnerable. He said banks are moving towards sourcing gold in consignments and are preparing the ground for it.

In such a transaction, the foreign supplier entrusts the gold with us, and the price is fixed when the buyer comes in. He said his bank would begin importing in consignments before the end of the year. There are a few issues to be tied up. These include signing of consignment agreements, excellent vault capabilities, insurance formalities, besides setting up the logistics and administration.