Electronic Gold Receipts (EGRs).

Indians love gold. In fact Indian households have more gold than Central banks of the biggest economies.

But did you know that we are still price takers in the global gold market?

To solve this, SEBI is planning to introduce electronic gold receipts (EGRs).

What are EGRs?

When you deposit your money in a bank, your balance will show the amount of money in your bank account.

It is your money and the balance is proof that the bank is holding this amount for you.

Similarly, EGR is a certificate that says you own 10g of gold.

You are not physically holding the gold but there is a vault manager who is taking care of it.

These receipts are available in demat form and can be traded just like stocks.

How do you get these EGRs?

You can either buy these receipts from the exchange

Or

You can deposit your gold at a SEBI-registered vault manager (Maybe a bank).

Against 20g of gold, they give you 2 electronic receipts of 10g gold.

What is the advantage of these receipts?

1) Makes selling very easy - You get liquidity very easily just like selling a security from your demat account.

When you sell physical gold, you have to carry the gold to jewellers where you have to sell at their quoted price.

You have no bargaining power or transparency about price or purity.

You can see the price and purity of the EGR in real time and sell when the price seems right.

It is also convenient to not have to carry gold physically and being able to sell from any part of the country.

2) Security - You don’t need to worry about the safety of your gold.

It is the responsibility of the vault manager which not only has extensive standards of security as per the master circular on EGRs but vault manager also needs to take insurance.

In case of any discrepancy, it is the responsibility of the vault manager to replenish the gold of the same quality, quantity and as per India goods delivery standards.

3) Quality - Unlike holding physical gold normally, the vault manager/custodian verifies the purity of the gold before creating the EGR. This purity standard would help avoid any issues of quality at the time of selling.

4) Backed by physical gold

5) Can be redeemed for physical gold - Electronic Gold Receipts must be made ‘fungible’, i.e. EGR holders should be able to convert the EGRs issued by o ne vault manager at another vault manager’s facility.

This is by far the best feature of the EGR.

Gold ETFs are a popular and liquid product but they are not a tool for trading physical gold on exchange. EGRs are the first such product in India.

And the implications of this go much further.

Because you can buy, sell, redeem from any part of the country, this creates a single price and a single gold market.

If there is any price arbitrage, then investors would take advantage of this by buying or selling and making the price uniform.

Even though India is one of the biggest importers of gold, because our markets are so disaggregated and prices are not uniform even in different parts of the same country, there was no price discovery.

And a lot of transactions were done in cash without any proof.

Of course there would be costs that vault managers would charge investors, but this can transform our gold markets.

However, execution is everything. Let's see if EGRs can change India from a price taker to price maker.

Personally excited for this product.

Source:Chatgpt,winwealth.com