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Informist, Thursday, Jan. 23, 2025

 

By Sandeep Sinha and Ashutosh Pati

 

MUMBAI – Gold exchange-traded funds will outshine other asset classes this year as the latter could fetch negative returns, Sachin Jain, regional chief executive officer India, World Gold Council, said. Gold ETFs have a bright future in India, but the knowledge and awareness about ETFs among domestic consumers remains very low, Jain told Informist.

 

Investment in domestic gold ETFs rose to 57 tonnes in 2024 from 40 tonnes in the previous year, up over 40%. "A regular consumer on the street does not really know how it (ETF) functions. The term 'ETF' is also very complicated and requires simplification. If we call ETF an exchange-traded fund, people will understand better as it will take away the complexity of it," Jain said in an interview. "So, as awareness goes up, the Indian consumer will become a digital native. The confidence in holding assets on your phone and your accounts will grow, and gold ETFs will have a very bright future in the country."

 

With demand for investment in gold expected to remain firm this year, along with continuous buying of the yellow metal by global central banks, Jain expects 2025 to be a more stable and stronger year for gold. "There will certainly be growing demand for financial products, like bars and coins, and these products would grow," he said.

 

Jain said it will be a good year for gold jewellery in India if prices remain stable, which will spur demand. If there is a lot of volatility, we may see slightly lower growth, he added. Indian buyers have a unique relationship with gold due to its purity and value. Despite the rise in gold prices, consumers have not moved towards products with lower caratage, such as 14- and 9-carat products, he said. "That relationship did not get disturbed in 2024, and it should not happen in 2025," Jain said.

 

On the sovereign gold bonds, which were last issued by the Reserve Bank of India in February last year, Jain said these were great products for the consumer but not the best for the issuer (RBI). The product held a lot of promise and led to a lot of interest in gold, but since it was not backed by physical gold, it caused a gap in the central bank's balance sheets, he said. "We don't know when they (RBI) will start (reissuing the bonds). In whichever year they start, they will look at slightly reshaping what sovereign gold bonds look like, perhaps backing these with physical gold," Jain said.

 

With the Union Budget for 2025-26 (Apr-Mar) set to be presented on Feb. 1, Jain expects the government to maintain status quo in customs duty on gold. "It (duty reduction on gold) has done a lot of good to the country. There's one price on which people are operating," he said. Finance Minister Nirmala Sitharaman in the FY25 Budget had announced a cut in the basic customs duty on gold and silver from 15% to 6%.

 

The government's policies have been very progressive, and a lot of progress has been made in the short-term and long-term strategies, which are yielding very good results, Jain said. "Earlier, there were huge price disparities between smuggled gold and official gold. Because of this, the organised player who wanted to do things correctly could not do well. So there's a lot of good that's happened where everybody is in the same place, and most importantly, the Indian consumer is getting gold at the same price as any other country," he added.

 

The actual results of how the customs duty reduction on gold will positively impact the country are coming up and will be more visible as we go forward, he said. ".... the Indian government will perhaps not make another change or perhaps give it some more time and see the actual results."

 

In 2024, India imported around 720 tonnes of gold, which has remained almost steady for the last three years. Asked about how much gold India will import this year, Jain said the country is likely to maintain the same levels, depending mostly on investment in multiple gold financial products and overall performance of gold as an asset. Maintaining the same levels of gold imports is already a great achievement and reflects the heightened interest for the yellow metal in the country, he said.

 

Asked about monetising gold held by households, Jain said the current method of bringing out gold is very tedious as it involves going to a bank, then to a refiner, who then takes 20 days to come back with the required purity. "We have a very emotional relationship with gold jewellery and leaving it with a stranger for 21 days is asking too much of the consumer," Jain said. This cycle, he said, needs to be shortened and technology can a play a crucial role in this. An efficient method will also comfort the consumers as there's a lot of fear around taxation as well, he added.

 

The whole world is moving towards artificial intelligence and the fact that AI chips are using more and more gold is a good sign for the bullion industry. Use of AI-based technologies across industries has grown 12-15% every quarter because of rising demand for more sophisticated and powerful hardware, Jain said. "India is still a small microchip supplier to the world and while the government is working hard on it, there's still work to be done so that we become the centre, and hence consumption is impacted hugely because of AI chips," he added.

 

The use of blockchain technology is making the gold industry transparent as it is becoming easier to know the source with different compositions and values available, such as gold with 999 purity, with 995 purity, 10-kg bars, and 8-kg bars. Most members of WGC and the London Bullion Market Association are putting information on blockchain, and the same database is maintained for every gold bar that's coming through the system, he said.

 

The long-term intent is that if a consumer has a digital gold product, he should be aware of three promises--one, this is authentic good, meaning it's exactly what it claims to be. If it's saying 999 purity, then it is 999 with responsible sources. Two, gold should be accessible 24x7. Third, gold should be fungible so that it can move from one entity to another and from one country to another. This will only be possible because of blockchain technology, Jain said.  End

 

Edited by Tanima Banerjee

 

 

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