Indian Gold ETF’s on a four year high at 23.9 tons

 The Modi government’s knee jerk imposition of the nationwide lockdown on 25th March to contain COVID-19 Pandemic has resulted in near decimation of an already failing economy. Like the majority of the products, the sale of physical gold has crashed too. However, the rise of the price of gold around the world and Indian Rupee touching record high’s has resulted in an increase in investments in the Gold Exchange Traded Funds. The Gold ETF‘s have seen inflows of 7.4t, taking total holdings to a four year high of 23.9t. It represents an AUM of US$1.5 bn.

In the past, the gold ETF holdings in India had fallen almost uninterruptedly since 2013, from 42t in January 2013 to just 16t by December 2019, as per Metals Focus.

The confusing lockdown policies did not even spare the auspicious Akshaya Tritiya on 25th April. The Q2.2020 gold demand fell by 74% y/y, the lowest Q2 ever.  

The government Sovereign Gold Bonds (SGBs) has also done better. SGBs are government securities denominated in grams of gold but not backed by physical metal. The bond has an 8 year period for maturity and investors can exit after 5 years.  The Reserve Bank of India (RBI) began issuing SGBs in November 2015. So far there have been 42 issues out of which eight have been placed this year. To date, SGBs have attracted 48 tons of gold, of which 18 tons have been added in 2020. The price of the gold will determine the remaining two issues for this year.

There are also gold product offerings by digital payment platforms Google Pay, PhonePe, PayTM, and financial institutions like Motilal Oswal and HDFC Securities, offering various advantages, including a 24 hour buy and sell options, and delivery if required, above minimum quantities. These products have transparent pricing and no minimum purchase limit. There has been a modest growth of gold purchases by these mediums.

A July 2020 WGC report estimates nearly 2.5 million active gold investors, with gross market size, ie, trading volume: buy and sell) for digital gold products of around 5 tons and net outstanding of less than 3 tons.