Indians have a robust affinity for gold and silver. This has traditionally been expressed in demand for gold and silver jewelry, together with bars and coins. But over the past 12 months, there was tremendous growth in gold and silver exchange-traded funds (ETFs).
In simplest terms, an ETF represents a basket of investments that trades in the marketplace as a single entity. As an example, a gold ETF is backed by a trust company that holds metal owned and stored by the trust. Typically, investing in an ETF doesn’t entitle you to any amount of physical 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 the gold and silver markets, but owning ETF shares just isn’t similar to holding physical gold or silver.
Inflows of gold into ETFs can significantly impact the worldwide gold market by pushing overall demand higher.
2024 Gold and Silver Demand in India
Even with the worth of each gold and silver at record levels, Indian demand for each metals has been strong to this point in 2024.
The Indian government cut taxes on gold and silver imports by greater than half in July, lowering duties from 15 percent to six percent. The move initially pushed prices down by about 6 percent and drove record gold imports in August. The worth drop boosted demand for each metals.
Despite the import duty cut, gold and silver prices have charted strong gains in rupee terms. In accordance with Metals Focus, gold has surged 20 percent this 12 months, touching Rs.80,000/10g in the method. Silver prices have jumped by 17 percent, briefly exceeding the psychologically vital Rs.100,000/kg.
Indian buyers are likely to be price sensitive, and the upper price has undoubtedly created some headwinds for retail demand, but based on Metals Focus, rising prices have “attracted fresh investment amid expectations of further price increases.”
Demand for gold bars and coins has jumped by an estimated 38 percent year-on-year to 163 tons through the primary nine months of 2024. That’s the very best level since 2013.
Meanwhile, silver investment demand is up an estimated 15 percent to 1,766 tons. That’s the second-highest level since 2015.
Indian Gold ETFs Enjoy Resurgence
Gold and silver ETFs are a comparatively recent phenomenon in India. The primary Indian gold ETF was launched in 2007, and the primary silver fund was created in January 2022.
Gold ETFs initially didn’t attract meaningful flows. In accordance with Metals Focus, this was resulting from two aspects.
- Lack of investor awareness
- A preference for physical metal.
Indian gold ETF holdings initially peaked at 40.8 tons in 2013. Because the Great Recession faded into the rearview, tepid interest in ETFs waned much more, with gold-backed fund holdings falling to simply 14 tons in 2019.
The introduction of sovereign gold bonds (SGBs) in 2015 put a drag on ETF investment. The federal government-issued securities are denominated in grams of gold, but they will not be backed by physical metal. Nevertheless, they’re guaranteed by the federal government and offer a 2.5 percent yield. In addition they have tax benefits.
In accordance with Metals Focus, SGBs attracted gold investment corresponding to 147 tons, with much of the motion coming post-pandemic.
“To place this into perspective, up until March 2020, the Reserve Bank of India (RBI) had issued 37 tranches of those bonds, but this attracted just 31 tons of gold. After March 2020, 30 tranches were issued, which brought in 116 tons.”
The federal government didn’t issue any SGBs in February 2024, boosting ETF demand.
The positive sentiment toward the yellow metal also boosted gold ETF investment post-COVID. Golding holdings in Indian-based funds rose from 19.4 tons in March 2020 to 54.5 tons as of October 2024. In accordance with Metals Focus, “These inflows, although limited in tonnage terms, were driven by various aspects similar to a jump in retail trading accounts, the launch of multi-asset funds, and price-driven optimism.”
The pace of gold inflows has accelerated this 12 months. Indian ETF holdings have increased by 12 tons, the very best gain since 2020.
Indian Silver ETFs: A Success Story
India’s love affair with gold is well-known, but Indians even have an affinity for silver. In accordance with Metals Focus, Indian investors have collected over 17,000 tons of silver in bar and coin form within the last 10 years.
Indians not only view silver as a store of wealth, but additionally they see it as a strategic investment option. As Metals Focus put it, the white metal has “tactical appeal, which is driven by its inherent volatility. This has attracted fresh investors in India throughout the recent bull run they position themselves for potential price gains.”
Silver ETFs based in India have experienced remarkable growth for the reason that first one launched just over 2 years ago. Silver holdings exceeded 1,000 tons in August.
Silver ETFs now equal about 40 percent of annual retail silver investment. This compares to about 5 percent for gold ETFs.
In accordance with Metals Focus, silver’s price performance coupled with an absence of competing products has driven the expansion of silver ETFs.
As Metals Focus noted, silver-backed ETFs also solve a practical problem.
“Given the dimensions of silver bars, this may present a challenge for retail participants to store the metal. This issue was addressed with the launch of ETPs, where investors can hold silver as a security of their trading account.”
Looking Ahead
Metals Focus projects each silver and gold ETFs in India to see inflows of metal.
“This reflects each more investment managers recommending exposure to precious metals and a growing awareness amongst investors of precious metals ETPs. Consequently, we expect to see considerable growth in India’s share of worldwide ETPs, which is currently at 1.6 percent for gold and 4 percent for silver.”