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Nepal move to boost gold market

September 25, 2010

KATHMANDU (Commodity Online): Now, Nepal is set to add some fireworks to the gold market in the coming days.

In a decision that will have a direct impact on the bullion market, Nepal government has decided to increase its gold reserves in the coming years.

Till now Nepal has been keeping its reserve funds in foreign currency but following the rise in gold prices and the uncertainty in global economy have forced the government to shift to gold.

So, the Nepal government decided to bolster gold reserve to back up macroeconomic stability and manage the market, after poor management of gold trade fueled balance of payment (BoP) deficit posing challenges to stability for about a year.

This move will help the gold market gain in the coming days as this news will have a positive impact on the bullion sector. Moreover, the news of another government going for gold will definitely send a message that the world is now shifting to gold reserves. In November 2009, India had bought 200 tonnes of IMF gold to bolster its reserves.

Recently Bangladesh had bought 10 tonnes of IMF gold, giving a boost to the global gold market.

According to a media report, ministry of finance and Nepal Rastra Bank (NRB), the central bank of the country, have endorsed a new policy on gold, under which they have converged at maintaining separate reserve of monetary gold and 24 caret pure gold.

Nepal will bolster reserve of monetary gold to back up currency and the additional 24 caret pure gold reserve will be maintained to intervene in the market in case of distortion.

Currently, NRB has over six tonnes of gold in its reserve. While five tonnes of the reserve is in Nepal, another 1.2 tonne is deposited in Luxemburg against the interest return of 2 per cent per annum. The interest is received in gold.

Nepal has set a target to add three to four tonnes of yellow metal in the monetary gold reserve every year once it attains BoP surplus. What this means is, the policy has adopted a strategy to utilize the surplus BoP to procure gold. So far, the surplus is maintained in foreign currency.

The government decided to adopt the new approach mainly as the rate of return of gold in recent years has remained much higher than currency.

The government has currently banned the import of gold after it failed to re-impose higher import duty, which was necessary to plug the duty differences on gold between Nepal and India. But as that has created short supply, it has sparked illicit inflow of gold from India.

Nepal’s gold import in 2009/10 had touched $570 million dollars as substantial duty difference on gold between Nepal and India spurred smuggling from Nepal to India.