No one loves the yellow metal as much as Indians. Gold is the best security, the safest hedge, an asset that has stood the test of time. Only, it has not exactly fallen within the parameters of organised business. But this is changing rapidly, as buying, trading, pawning, and even storing of gold is turning into an organised business.

Experts opine that this transition has a lot to do with the development of commodity exchanges in India . With five national commodity exchanges and a sixth one under consideration, this market looks interestingly poised. Recently, Mumbai-based information technology firm IT People proposed to set up a national-level commodity exchange which, if approved, would be the sixth national-level exchange to offer hedging in commodity futures, and the second public-private partnership commodity exchange in the country after the MMTC-Indiabulls?-promoted Indian Commodity Exchange (ICEX).

Prithviraj Kothari, director, RiddhiSiddhi Bullion, points out that gold has for ages been considered as good as currency. Gold trade has come a long way in India, he says, adding the primary reason for this change is the development of futures exchange, which has greatly helped to make gold trade an organised business. ?Traders are able to immediately hedge their positions, so the price risk is minimal. Also, due to advances in communication technology, the price is simultaneously available to all traders, which helps in fast and correct decision-making.? In order to attract retail investors, National Spot Exchange (NSEL) recently launched an electronic facility in spot gold trading. Reportedly, the segment is similar in function to the cash segment in equities and offers gold in demat form in smaller denominations of one, two and three grammes.

Vasant Mehta, chairman, Gems & Jewellery Export Promotion Council, says demand for gold investment is picking up in India vis-?-vis demand for jewellery. ?There is a marked shift towards investments in gold in tier-II and III cities. Investors want easier liquidity. With jewellery, there are hindrances of appraisal (valuation) besides the fact that while re-selling, the cost of labour is not recoverable.?

With more than nine tonnes of assets under management (AUM) as of February 2010, gold Exchange Traded Funds (ETFs) are also becoming one of the most efficient forms of holding the precious metal. Naveen Mathur, associate director, commodities and currencies, Angel Broking, says gold ETFs do not just have the potential to increase mobilisation of gold, they also increase hallmarking of the metal. ?Systematic Investment Plans increasing wealth management interest, along with increased awareness among HNIs, shall propel major growth in ETFs. Last year?s excellent returns in excess of 25% make ETFs a very attractive market for investors.?

Mathur explains that investors now look forward to invest in gold through SIPs in new fund offerings that include gold as an asset class. For instance, if an investor puts in Rs 100 in a fund, she has the option of putting Rs 20-25 in gold as an asset class, 50-60% in debt and the rest in equities. Such asset allocations offered by funds indicate that gold has now emerged as an asset class par excellence. Retail chains are also fuelling the organised gold business segment. Reports indicate that jewellery mall developer Gold Souk is planning to set up a special economic zone dedicated to gems and jewellery with an investment of Rs 2,000 crore in Gurgaon.

To raise the capital necessary for expansion, jewellery retail houses are increasingly tapping the capital market. Following the successful model of Titan and Gitanjali, Thangamayil Jewellery, Shree Ganesh Jewellery House and Goenka Diamond debuted on the stock markets in the first quarter of the year. Chetan Majithia, head (equities), Crisil, says: ?Other jewellery houses such as Tribhovandas Bhimji Zaveri are also mulling the idea. Traditional businesses are now realising the benefits of being listed, which means better reach and exposure for the sector, which is great.?

Recently, Muthoot Finance also announced its intention to raise funds through an initial public offer or through the private equity route. The group has reportedly approached banking regulators in the UK to start offering loans using gold as collateral. According to Angel Broking, the organised gold loan market in India has grown at a compounded annual growth rate of 38% between 2002 and 2009. The market is expected to grow at an annual rate of 35-40% over the next three years. Says Gnanasekar Thiagarajan, director, Commtrendz Research: ?The organised loan market has started doing well in the past few years. What was being done through the pawn network is becoming more organised. With NBFCs offering Sunday and overnight loan facilities, this segment is bound to do well and help the common man, who was always at the receiving end from pawn brokers.? It?s not just that the common man is benefiting from the organised loan segment. The other big NBFC in the gold loan segment, Manappuram, witnessed one of the biggest venture capital exits over the last one year after making a five?fold profit. After raising Rs 245 crore via QIP, the group is adding to its glamour quotient by planning to spend Rs 100 crore towards advertising. World Gold Council , India , has initiated gold-linked microfinance scheme via NBFCs/ microfinance institutions to cater to the ?bottom-of-the-pyramid? consumers. Ajay Mitra, managing director, India and Middle East, World Gold Council, explains that a BOP consumer can walk into the NGO/service provider?s office in their vicinity, book gold at the current price and after making an initial down payment of 10-15%, avail installments as low as Rs 16 per day, ranging from a period of 12/18/24/36 months. Payment of installments is collected via the service provider?s agents at the workplace of members. The WGC launched the Swarna Varsham scheme with Muthoot Pappachan Group in Kerala. ?The project has been extended to all four states of south India and parts of west & north India with more than 89,000 customers currently enrolled in this scheme,? says Mitra.

Also, WGC is running a project with Kshetriya Gramin Financial in association with Gold Plus (from the House of Tatas) under which they launched the sales of gold medallions via 15 of its branches in the Thanjavur and Thiruvarur districts of Tamil Nadu. ?We plan to extend this scheme to the Ganjam district in Orissa and Tehri-Garhwal in Uttarakhand. Given the overwhelming response to these projects, we have initiated a dialogue with other micro-finance agencies/ NBFCs across India. This is just the beginning,? signs off Mitra.