Saturday, May 14, 2011

GOLD, SILVER AND COMMODITY TRADE SHAVING OFF COMMON MAN'S POCKET FAILING REGULATORY INTERVENTION.

The Commodity markets in India have witnessed unprecedented speculative activities after the advent of commodity exchanges in India. The international commodity exchanges trading activity
in Brent crude oil, gold, silver and other commodities have witnessed a hyper speculated increase in prices and sudden downfall recently. The speculative activities have been recently curbed by the US Government and we could witness its direct impact on the Indian commodities markets' speculative activities. The recent days have seen very high speculative rise in prices of gold, silver and crude and other commodities during March 2011 to April 2011 followed by recent very severe downfall in May 2011. The Government of India is keeping its eyes and ears closed and are not able to appreciate the brutal implication such activity has on the pockets of large cross section of illegal speculative
"Investors" who are lured ruthless increase in prices and hefty "track record" of earnings, which ultimately lead to severe losses, large debt trap, suicide and other social evils. The Government of India brought back the commodity derivatives for the purpose of hedging the risk of market fluctuations to mitigate actual risk being undertaken by the businesses or the agriculturalists and other stakeholders. This is however, being converted into a legalized casino as 99 percent trades are happening without any hedging motive and are purely speculative. The price discovery is marred by traders and dealers who have no direct or indirect relation with the commodity in question.

Gold Loans- another area of concern:

Recently activities on the front of gold loans have suddenly increased by very active advertisement and publicity by certain non banking financial companies openly lending money against security of gold. The Gold Loaning Companies may get unjustly richer with the poor ones misfortunes. The Money lending business need close monitoring and regulations. The regulatory risk and possibility of serious threat to a large number of borrowers as well as investors from these non banking financial companies, is looming large. RBI or Finance Ministry has not come out with any detailed guidelines or safeguard so that the potential risk of losing the gold itself or excessive leverage impact on the viability and sustainability could be addressed effectively. Securities Exchange Board of India also need to look out the safety and security of gold reserve with exchange traded funds, depositories, spot and commodity exchanges and approved warehouses. The entire chains of intermediaries will require a serious examination to ensure that the potential risk is managed, before it is too late. It is recommended that SEBI, RBI and Ministry of Finance should set up a Special Task Force to review its money lending and security guidelines so that patch work action does not adversely affected the borrowers, the investors as well as the non banking financial companies. The regulatory dose should be adequate and effective as well as timely. 

Micro Finance Companies:

The micro finance companies have recently suffered due to lack of adequate and timely regulations followed by knee jerk reactions. The MFCs need to be empowered financially with necessary regulatory and development initiative so as to achieve a proper balance.

0 comments:

Post a comment