by Mike Maherry
Indians have a strong affinity for gold and silver. This has traditionally been expressed in the demand for gold and silver gems along with bars and coins. However, last year, gold and silver exchange sales funds (ETFs) have grown significantly.
Simply put, ETFs represent a basket of investments traded in the market as a single entity. For example, gold ETFs are supported by trust companies owned by metals and stored by trusts. In most cases, investments in ETFs do not receive physical amounts of gold or silver. (There are exceptions.) You own a share of the ETF, not the metal itself.
ETFs are a convenient way for investors to play gold and silver markets; Owning ETF shares is not the same as holding physical gold or silver..
The inflow of gold into ETFs can have a significant impact on the global gold market by increasing overall demand.
2024 India’s gold and silver demand
Even with both gold and silver prices at record levels, India’s demand for both metals has been strong in 2024 so far.
Indian government cuts taxes on gold and silver imports Over half of July, the duties were reduced from 15% to 6%. The move initially reduced prices by about 6% and pushed record-breaking gold imports in August. The price decline has increased demand for both metals.
Despite the reduction in import duties, gold and silver prices have made great profits in terms of rupee. According to metals, it is in focusGold has skyrocketed 20% this year, touching Rs.80,000/10g in the process. The price of silver has risen by 17%, temporarily exceeding the psychologically significant Rs.100,000/kg.
Indian buyers tend to be price sensitive, with higher prices creating headwinds in retail demand, but according to the metals focus, price increases are “In anticipation of further price increases, attracted new investments. ”
Demand for gold bars and coins jumped to 163 tons, an estimated 38% year-on-year increase in the first nine months of 2024. This is the highest level since 2013.
Meanwhile, silver investment demand has increased by 1,766 tons from an estimated 15%. This is the second highest level since 2015.
Indian gold ETFs are enjoying their revival
Gold and silver ETFs are a relatively new phenomenon in India. The first Indian Gold ETF was launched in 2007, and the first Silver Fund was created in January 2022.
Gold ETFs initially were unable to attract meaningful flows. According to the metal focus, this was due to two factors.
- Lack of investor awareness
- Physical metal preferences.
Indian Gold ETF Holding initially peaked in 2013 at 40.8 tons. As the Great Recession waned in the rear, lukewarm interest in ETFs declined further, with gold-backed fund holdings dipping to just 14 tons in 2019.
Introduction to Sovereign Gold Bond (SGBS) In 2015, we put drugs on ETF investments. Government-issued securities are derived from gold grams, but not supported by physical metals. However, the government is guaranteed and offers a 2.5% yield. It also has tax benefits.
According to Metals Focus, SGB has attracted 147 tonnes of gold investment, and many actions have come after the pandemic.
“To put this in perspective, until March 2020, the Reserve Bank of India (RBI) issued 37 tranches of these bonds, which raised just 31 tons of gold.
The government did not issue SGB in February 2024, increasing demand for ETFs.
Positive sentiment towards the yellow metal boosted post-Covid gold ETF investment. The India-based golding holdings increased from 19.4 tonnes in March 2020 to 54.5 tonnes in October 2024.These inflows were driven by a variety of factors, including jumping retail trading accounts, launching multi-asset funds, and price-driven optimism, despite the limited tonnage.”
The pace of money inflows is accelerating this year. India’s ETF holdings have increased by 12 tons, the highest profit since 2020.
Indian Silver ETF: Success Story
Although Indians’ love for gold is well known, Indians also have an affinity for silver. According to the metals focus, Indian investors are accumulating 17,000 tons Silver in the form of bars and coins over the past decade.
Indians see silver as a store of wealth, but also as a strategic investment option. When the metal focuses, white metal isTactical charm driven by its inherent volatility. This attracted fresh Indian investors during the recent Bull Run.. ”
The India-based silver ETF has seen significant growth in its first ETF, launched over two years ago. The company’s silver holdings exceeded 1,000 tonnes in August.
Silver ETFs currently represent approximately 40% of annual retail silver investments. This is comparable to about 5% of gold ETFs.
According to Metals Focus, Silver’s price performance and a lack of competing products have driven the growth of silver ETFs.
As the metal focus points out, silver-assisted ETFs also solve practical problems.
“Given the size of the silver bar, this could pose challenges for retail participants to store metals. This issue was addressed with the launch of ETP, which allows investors to retain silver as security in trading accounts.”
Looking ahead
Metals focus on both silver and gold ETFs in India and see the influx of metals.
“This reflects both investment managers who recommend exposure to precious metals and increased awareness among precious metal ETP investors, and as a result, we hope that India’s global ETP share is growing considerably.
