Traditionally, Indians invest and buy gold in the form of jewellery which is the most common gift during religious events and festivals. However, things are changing and Indian buyers are becoming increasingly aware about the benefits of holding gold in other forms.
ETFs – EXCHANGE TRADED FUNDS are one of them. ETFS are financial instruments that trade like shares and are backed by physical holdings of the commodity. An ETF basically holds assets at approximately the same price as Net Asset Value of its underlying assets over the course of the trading day.
Currently, gold jewellery accounts for nearly 70 to 80 percent of the total gold demand in the country. Investors make around 10% investment in gold which is expected to increase to around 20 – 25 percent in the next two years. This would be mainly because investors are facing inflation, volatile equities and low bank deposit rates. More investment in gold is expected from retail and high net worth individuals.
India’s increase in gold demand would increase and help imports to rise to 600-625 tonne this year from 480 tonne in 2009, the rise in investment demand would be comparatively faster. There is an increased awareness now. People have started realizing the fact that coins and bars would protect the value of their investment unlike jewellery.
In the April to June quarter, the country’s investment demand for gold was at 41.5 tonne, up 7% on year, while jewellery demand stood at 123 tonne, down 2% on year (data from the World Gold Council.)
Other factors involved here are the cost of jewellery, which is much higher, by 5% to 6% (on top of the price of gold), while in case of bars and coins it’s merely 0.01%. Mainly the reason for the investment segment of India’s gold market has been expanding rapidly.
In recent years, Indians have increasingly bought gold bars and coins across bank counters and at jewellery shops, purely as an investment. Also it’s a convenient investment as bars and coins can easily be exchanged for jewellery at the time of weddings in the investors’ families considering the Indian culture and nature of investors.
