Spectacular rise in Gold ETF folios underlines faith in yellow metal, but...

While the digital world has changed many human habits across the globe, demographics, and cultures, Gold seems to have retained its sheen even in the binary landscape. The fifteen-fold rise of Gold ETFs folios (Exchange Traded Funds) in the last four years, underscores the new generation’s unwavering faith in yellow metal despite opportunities like Crypto, NFT, and the entire cohort of asset classes being available at its disposal for investments.

According to the Association of Mutual Fund of India, the number of Gold ETFs folios had gone up from 3.1 lakh to 46.67 lakh between September 2018 and November 2022. The net asset under management (AUM) under 11 active Gold ETF schemes moved up from ₹4,385 crore to ₹20,833 crore between November 2018 and November 2022.

High-speed growth in Gold ETFs folios is a reflection of retail and high networth individuals (HNI) growing affinity towards the digital asset. Today, even salaried youth and millennials are shifting towards digital assets of gold due to concerns regarding the safety of physical gold and the trust deficit between buyers and sellers, according to industry experts.

MILES TO GO…

As per RBI guidelines, all gold ETFs in India are backed by physical gold, ETFs positions are generally expressed in quantum (metric ton). Since India’s gold production is negligible, all ETF holding of gold is imported into India. The combined holding of eleven active gold ETF schemes’ moved up from 15.1 metric tonnes to 38.6 metric tonnes, a 156% jump in the last four years.

Though folios, AUM, and holding of Gold ETFs in India have grown considerably, it is still minuscule in comparison with Global ETFs holding. As per World Gold Council at the end of November 2022, India’s holding was just 1.1% of Global Gold ETFs holding of 3,477 tonne.

It is clear that demand for digital gold assets is increasing but still it represents a paltry portion of the annual demand for yellow metal in India. In 2020 total demand for gold stood at 446.3 tonne out of which just 13.5 tonne was in Gold ETFs.

In 2021, the total demand for Gold was 797.3 tonne out of which 9.3 tonne was in Gold ETFs. India imported a record 984 tonnes of gold in 2021 but ETF holding moved up from 28.3 tonnes to 37.6 tonnes between 2020 and 2021. Thus, 9.3 tonnes of gold imported on account of ETFs translated into a meagre 1% of India’s total gold import.

Meanwhile, in the first nine months of 2022 India imported 515 tonnes of gold but India’s Gold ETF holding moved from 37.6 tonne to 38.1 tonne, a rise of barely 0.5 tonne. These numbers show that though digital gold is gaining traction it is still a minuscule part of India’s gold demand as well as import. Though physical gold still trumps digital gold consumption by a big margin, there is immense scope for digital gold assets to grow.