The World Gold Council (WGC) has developed a set of guidelines for digital gold, which includes norms for both, investors and service providers in this space. The standards, which have been designed to protect investors and promote best practices, highlight the fact that there is a need to provide for investors’ safety when they buy gold on the internet, especially in a prominent market for the metal like India. With this guideline, the council has also nudged the government to issue regulatory norms for buying and selling digital gold in the country.
Physical gold bought online and stored on behalf of the buyer is known as digital gold or Internet Investment Gold (IIG). The WGC guidance is voluntary and common for all countries. However, the report said that respective governments should prepare regulations for IIG or digital gold which are binding. WGC has not offered insights into who can offer digital gold and the provider’s net worth criteria.
According to its IIG guidelines, “There are estimated to be more than 200 providers of IIG or similar products globally. The largest providers hold billions of US dollars in precious metals on behalf of investors. Product providers are spread across numerous countries, ranging from Europe and North America to Asia and the Middle East.”
In India, three platforms have emerged in just two years’ time, claiming to have opened some 80 million accounts, which is twice the total demat accounts in the securities market. Market players say there are a lot of dormant accounts opened by providers to credit cashback in the form of gold or duplication of accounts across platforms, but the trend of buying gold digitally is fast becoming popular, albeit at very small ticket sizes.
The issue assumed significance after fears were raised about the safety of money invested in gold bought on the internet, as service providers are hardly regulated. Investors are not taking deliveries immediately and at times, sell digital gold holdings without taking delivery to “encash” the incentive provided in the form of gold on other transactions. From India’s perspective, Somasundaram P R, Managing Director, India, World Gold Council says, “Digital gold buying in India is catching up fast among micro savers and millennials on account of ease of transacting. It is set to grow phenomenally as the pace of digitisation of the economy increases. There is an urgent need for India-specific guidelines for providers to promote orderly growth of this segment and avoid any fly-by-night operators who could ride this boom and bring chaos and disrepute to the industry. These guidelines should enable customer protection through transparency – purity, price, independent custody of customers’ gold, is it insolvency proof from the provider, taxation aspects on buying and selling, etc.”