The India Bullion and Jewelers Association (IBJA) has also written to the capital markets regulator raising concerns for storage of physical gold against digital metal purchases and asking it to regulate the trading of digital gold.
The move comes at a time when digital gold is gaining importance in the Indian market and is getting hit with Millennials mainly because of the ease of investment. Anyone can invest digitally without any hassle and can buy 24K pure gold for Re 1 also.
To be sure, there is of course the issue of National Spot Exchange Limited (NSEL) scam that happened in 2013 where brokers wrongly sold NSEL products by assuring them of assured returns to the clients. On the other hand, the defaulters hypothecated the stock and allegedly produced fake warehouse receipts and misappropriated the money.
A senior official involved in the business said, “The biggest concern is about the storage of gold against all digital gold transactions. Is the gold being kept in the vault, where is the fear.”
Trusteeship companies were primarily engaged in authenticating physical stocks of gold against any digital purchases.
The capital markets regulator said the activities related to unregulated products like digital gold are not in accordance with the provisions of SEBI (Debenture Trustee) Regulations.
World Gold Council India Regional CEO Somasundaram PR said the market regulator has been issuing notifications on digital gold transactions over the past few months and asking brokers, debenture trustees and investment advisors to stay away from unregulated products like digital gold. Is.
“This has affected the Diwali sale of digital gold as people are worried. But if SEBI introduces a detailed regulatory framework for conducting digital gold business in India, there will be more clarity and transparency,” Somasundaram said. “Fly-by-night operators could have been abolished.”
India has a huge appetite for gold and is the second largest consumer of the yellow metal in the world. Although the demand for the metal has come down due to Kovid, it is expected that gold consumption will be around 600 tonnes this year. In pre-Covid times, India’s gold demand was around 800-850 tonnes annually. In fact, about 22,000 tonnes of gold is lying idle in Indian homes.
There are three major digital gold players in the country – MMTC-PAMP, Augmont and SafeGold.
“Existing players are collaborating to suggest a draft regulatory framework suitable for India, taking cues from the World Gold Council’s global guidance notes on digital gold providers,” Somasundaram said. “Given the growing importance of digital gold, the World Gold Council is supporting this initiative. We have helped digital gold businesses in Malaysia, Singapore and Indonesia create a regulatory framework based on our Internet Investment Gold Guidance Report.
In October, SEBI had asked investment advisors to refrain from dealing in digital gold.
In August, NSE had directed its members, including stockbrokers, to stop selling digital gold on its platform by September 10.