Director General of the Securities and Exchange Commission Malik Cader said that the basic framework to allow ETF has been finalized with the help of the Securities and Exchange Board of India, and the rules are going through legal drafting and other formalities.
"One feature in this particular exchange traded fund is in addition to equity one could also have commodities like gold and silver brought into the market," Cader told LBO.
"Hopefully next year we will have gold ETFs trading in the Colombo stock exchange.
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With the US Federal Reserve printing money to create prosperity through inflation the price of real commodities has been rising to levels even higher than before the 2008 commodity bubble.
Investors have piled into gold, driving its price to around 1,400 dollars an ounce, high than the 1,000 dollars level reached in the first quarter of 2008, before the commodity bubble burst, as credit imploded in the US in particular.
Before the creation of the Federal Reserve in 1913, gold was just 20 dollars an ounce from 1792 and money was gold.
But the dollar was devalued in 1933 to 35 dollars an ounce during the great depression, which started with the collapse of an economic bubble fired by the Fed in the mid 1920s.
The post war Bretton Woods system collapsed in 1971-73 as the Fed printed money to finance the Vietnam war, firing a massive commodity bubble (oil shock) in the process and gold went to over 80 dollars an ounce.
The World Gold Council, an body representing the gold industry said demand in India was rising on 'monetary perceptions.'
WGC said by August 2010 gold ETF have grown to 10 tonnes from 6 tonnes a year earlier. Though Indian gold ETFs allows non-gold assets up to 10 percent, at the moment they are fully backed by gold, the report said.
When the value of paper money falls, people go back to gold.
World Bank chief Robert Zoellick upset mercantilist economists by suggesting that the world should consider a gold linked monetary system.
Corrected