by Mike Maharrey
Indians have a robust affinity for gold and silver. This has historically been expressed in demand for gold and silver jewellery, together with bars and cash. However during the last yr, there was great development in gold and silver exchange-traded funds (ETFs).
In easiest phrases, an ETF represents a basket of investments that trades available on the market as a single entity. As an illustration, a gold ETF is backed by a belief firm that holds steel owned and saved by the belief. Normally, investing in an ETF doesn’t entitle you to any quantity of bodily gold or silver. (There are exceptions.) You personal a share of the ETF, not the steel itself.
ETFs are a handy approach for buyers to play the gold and silver markets, however proudly owning ETF shares shouldn’t be the identical as holding bodily gold or silver.
Inflows of gold into ETFs can considerably affect the worldwide gold market by pushing total demand increased.
2024 Gold and Silver Demand in India
Even with the value of each gold and silver at file ranges, Indian demand for each metals has been robust up to now in 2024.
The Indian authorities lower taxes on gold and silver imports by greater than half in July, reducing duties from 15 % to six %. The transfer initially pushed costs down by about 6 % and drove file gold imports in August. The worth drop boosted demand for each metals.
Regardless of the import responsibility lower, gold and silver costs have charted robust beneficial properties in rupee phrases. In line with Metals Focus, gold has surged 20 % this yr, touching Rs.80,000/10g within the course of. Silver costs have jumped by 17 %, briefly exceeding the psychologically vital Rs.100,000/kg.
Indian consumers are typically worth delicate, and the upper worth has undoubtedly created some headwinds for retail demand, however in line with Metals Focus, rising costs have “attracted contemporary funding amid expectations of additional worth will increase.”
Demand for gold bars and cash has jumped by an estimated 38 % year-on-year to 163 tons by way of the primary 9 months of 2024. That’s the best degree since 2013.
In the meantime, silver funding demand is up an estimated 15 % to 1,766 tons. That’s the second-highest degree since 2015.
Indian Gold ETFs Get pleasure from Resurgence
Gold and silver ETFs are a comparatively new 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 failed to draw significant flows. In line with Metals Focus, this was because of two components.
Lack of investor consciousness
A choice for bodily steel.
Indian gold ETF holdings initially peaked at 40.8 tons in 2013. Because the Nice Recession light into the rearview, tepid curiosity in ETFs waned much more, with gold-backed fund holdings falling to only 14 tons in 2019.
The introduction of sovereign gold bonds (SGBs) in 2015 put a drag on ETF funding. The federal government-issued securities are denominated in grams of gold, however they don’t seem to be backed by bodily steel. Nevertheless, they’re assured by the federal government and provide a 2.5 % yield. Additionally they have tax benefits.
In line with Metals Focus, SGBs attracted gold funding equal to 147 tons, with a lot of the motion coming post-pandemic.
“To place this into perspective, up till March 2020, the Reserve Financial institution of India (RBI) had issued 37 tranches of those bonds, however this attracted simply 31 tons of gold. After March 2020, 30 tranches have been issued, which introduced in 116 tons.”
The federal government didn’t subject any SGBs in February 2024, boosting ETF demand.
The constructive sentiment towards the yellow steel additionally boosted gold ETF funding 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 line with Metals Focus, “These inflows, though restricted in tonnage phrases, have been pushed by numerous components corresponding to a soar in retail buying and selling accounts, the launch of multi-asset funds, and price-driven optimism.”
The tempo of gold inflows has accelerated this yr. Indian ETF holdings have elevated by 12 tons, the best achieve since 2020.
Indian Silver ETFs: A Success Story
India’s love affair with gold is well-known, however Indians even have an affinity for silver. In line with Metals Focus, Indian buyers have collected over 17,000 tons of silver in bar and coin kind within the final 10 years.
Indians not solely view silver as a retailer of wealth, however in addition they see it as a strategic funding possibility. As Metals Focus put it, the white steel has “tactical attraction, which is pushed by its inherent volatility. This has attracted contemporary buyers in India in the course of the current bull run they place themselves for potential worth beneficial properties.”
Silver ETFs primarily based in India have skilled exceptional development because the first one launched simply over 2 years in the past. Silver holdings exceeded 1,000 tons in August.
Silver ETFs now equal about 40 % of annual retail silver funding. This compares to about 5 % for gold ETFs.
In line with Metals Focus, silver’s worth efficiency coupled with a scarcity of competing merchandise has pushed the expansion of silver ETFs.
As Metals Focus famous, silver-backed ETFs additionally resolve a sensible drawback.
“Given the dimensions of silver bars, this may current a problem for retail members to retailer the steel. This subject was addressed with the launch of ETPs, the place buyers can maintain silver as a safety of their buying and selling account.”
Trying Forward
Metals Focus initiatives each silver and gold ETFs in India to see inflows of steel.
“This displays each extra funding managers recommending publicity to valuable metals and a rising consciousness amongst buyers of valuable metals ETPs. In consequence, we anticipate to see appreciable development in India’s share of worldwide ETPs, which is at present at 1.6 % for gold and 4 % for silver.”
