RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001

A.D.(M.A.Series) Circular No.28 October 5,1999

To,

All Authorised Dealers in Foreign Exchange

Dear Sirs,

Gold Deposit Scheme - Hedging of Gold Price Exposure

Attention of authorised dealers is invited to paragraph 3C.11 and Annexure II to Chapter 3 of Exchange Control Manual (ECM) containing guidelines for accessing International Commodity Exchanges for hedging commodity price exposure.

2. It has now been decided to allow authorised dealers who have been permitted by Reserve Bank to accept Gold under Gold Deposit Scheme to use Exchange -traded and over-the-counter hedging products available overseas, to manage their price risk arising out of sale of gold . However, while using products involving options , authorised dealers may ensure that there is no net receipt of premium , either direct or implied.

3. Banks which are allowed to enter into forward Gold contracts in India in terms of the guidelines issued by the Department of Banking Operations and Development (DBOD) , are also allowed to cover their price risk by hedging abroad in the manner indicated above.

4. Following consequential amendment may be carried out in the Exchange Control Manual :

Volume I:

After paragraph 3C.11 a new paragraph 3C.12 may be inserted as per the enclosed Slip.

5. Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.

6. The directions contained in this circular have been issued under section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act.