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Bullion trade had muck under the glitter Wednesday, March 28, 2001

AHMEDABAD: For the man on the street, the bullion market may be a complex matrix, or even an anachronism. However, what's surprising is that even the gold dealers and jewellers, who have been in the market for years, have found the bullion trade puzzling.

Unfortunately, these traders have never bothered to scratch the surface. So long as they were getting their gold at a price, which was much lower than what was available from the Mines and Metal Trading Corporation (MMTC) and other sources, the need to explore the operations was considered unnecessary.

Some of the gold dealers in the market say that in just about one and half year of entering the bullion market, K Lal, a city-based bullion firm which had started on an average daily turnover of Rs 10-12 lakh, had reached a daily turnover of more than Rs 100 crore. It did raise eyebrows, but nothing beyond that.

With K Lal capturing the market, the MMTC saw a dip in its volumes as very few traders lifted gold from them.

In fact, now, with all that has emerged in the bullion market in the last few days, it is the Mines and Metal Trading Corporation (MMTC) which has something to smile about.

Hitherto, their sales volume had been taking a beating as gold dealers in the local market preferred buying gold from gold merchants as their prices were lower by more than Rs 800 (in some cases the difference was as much as Rs 1,000).

Market sources say that, a few months ago, some of the MMTC officials had even questioned K Lal as to how it was able to sell gold at prices lower than market prices.

When 'The Times of India' contacted MMTC officials, they refused to comment on the whole issue, but they admitted that gold off-take from the MMTC had dropped. On being asked whether their sales would now pick up, they said it was yet to be seen whether demand for their gold would surge after the scam.

One thing that the bullion scam has done is pull down volumes on the city bullion market.

"Before the K Lal episode, close to 10,000 Ten Tola (TT) bar to 18,000 TT bar floated in the market. This has come down to hardly 1,000 TT bar to 2,000 TT bar today," says a gold dealer.

Market sources say this has happened because the MMTC and other nominated agencies which can import gold have stopped giving gold against fixed deposit receipt (FDR) and other such securities.

Most of the agencies had been releasing gold against FDR or bank guarantees, which fulfilled criteria set by them. These criteria were: the banks should be a scheduled bank with a networth of Rs 100 crore, a capital adequacy rate of more than 8 per cent and an NPA of less than 10 per cent. They gave a 60-day credit to gold merchants.

However, since the Madhavpura Mercantile Co-operative Bank and Classic Bank cases, the MMTC has been allowing only outright purchase. That is, gold is delivery by them only against cash payment. This is keeping a lot of gold dealers out of the market.

 

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