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All that glitters is gold - monetising gold!

Ershad Hossain | Published: October 05, 2019 21:31:38 | Updated: October 11, 2019 21:24:31


Over several centuries, mankind considered precious metals, like gold and silver, as safe-haven assets for neutralising unanticipated distressed events. In the Subcontinent, Gold is regarded as the highest asset class and the demand for physical gold dramatically increases during the wedding season.

In Singapore, I have traded gold and silver in the interbank spot market. Over the years, I have developed an interest in the bullion market. At the push of a button, our team bought gold and silver, and subsequently sold those products. Vast majority of my clients were jewelers from India and the Middle East; they used the spot bullion market for either hedging or speculative purposes. 

In the current time, we can purchase Gold certificates across the globe. For example, the market connects from Singapore and Vietnam to India. In developed countries, any individual can open a bullion account in most of the global banks. Over the past 20 years, gold price increased 5 (five) folds, from US$ 300 to US$ 1800, dipped to US$ 1100, and subsequently rose to US$ 1500 per ounce. The recent rise in gold price is due to the trade war between the USA and China; also geopolitics in the Middle East and global uncertainties are some causes behind the upsurge in gold price. 

Bangladesh Bank has reported holding 14 tons of gold with 999 purity. The net worth of this total figure is US$ 670 million or Tk 57 billion. This amount of gold remains unused till today.

In India, Reserve Bank of India, on behalf of the Government of India, issues from time to time Gold Sovereign Bonds against its gold reserves. The tenor of these bonds are 8 (eight) years but can be redeemed anytime after the end of the 5th year. There is also semi-annual interest rate or coupon of 2.5 per cent on the invested amount. The price of the Gold bond lot size is 1(one) gram of gold. The price of a lot is set by the last 3 (three) business days' closing prices of gold from the day of subscription. The reference rate is published by the Indian Jewelers Association, declared daily price for gold of 999 purity. Redemption takes into account prices of 1(one) gram of gold of last 3 (three) business days.

The benefit of purchasing Gold bonds are:

  1. No storage or making charges.
  2. Due to dematerialised form, there is no possibility of theft.
  3. Interest received unlike that of gold has no yield.
  4. Easy to subscribe or redeem.
  5. Although interest is taxable, capital gain is tax free.
  6. Banks can use pledged or lined Sovereign Gold Bonds as Statutory Liquidity Reserve (SLR).

Bangladesh Bank needs to rethink regarding how to utilise its partial gold reserve in the form of a savings vehicle for catering retail individuals and households within the country. Optimal utilisation of partial gold can also generate liquidity for the government, and subsequently the funds can be allocated to finance public projects for the next 5-to-8 years. These high-quality bonds can be pledged to banks for availing personal loan by the bond bearers.

Ershad Hossain is Chief Executive Officer of City Bank Capital, an investment banking subsidiary of City Bank. He worked in the derivatives market in Singapore with American Express, Standard Chartered and HL Bank for more than 12 years.

ershad.hossain@cbcrl.com

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