• Janvi Parmar

Gold ETFs

Updated: Sep 26, 2020

Gold as it is:

Gold is a precious metal with qualities such as malleability ductility and recyclability. It has various forms and various uses. Gold is Old! Old enough to be a metal, taking the form of a commodity to currency to becoming a global monetary reserve.

Gold is shining this year. Because of Covid-19 pandemic, there is liquidity crunch and investors are weighing in a variety of options for investments especially gold. Investors turn towards gold as an investment in times of uncertainty because it acts as a hedge (mitigates risk) against inflation. This is because no investor would like to bear huge losses on his/her investments in times of uncertainty. Did you know that you can own gold but not in actual sense and get benefits? Yes! I am talking about Gold ETFs in particular. Investing in gold has taken many forms.

Gold ETF is one such investment and it is the talk of the town.

What are Gold ETFs?

Gold ETFs are exchange-traded funds that track the price of physical gold. AMCs (Asset Management Companies) issue units in the form of paper-based documents or dematerialized form. These units copy the price movement of physical gold in the spot market. One can invest in as small as 1 unit of gold which is equal to 1 gram of gold. They are traded on the exchange just like stocks. Gold ETFs were first launched in Australia in March 2003.

Features of Gold ETFs are:

· The guarantee that you have purchased a unit of gold that is as pure as 99.5%

· Long-term capital gains tax and short-term capital gains tax

· Brokerage charges

· Need for storage of gold is eliminated

· Regulated on exchanges

· Usually there are no exit loads

· Offer liquidity as one can buy and sell on the exchange during trading sessions

· Just like a stock

· The units also called as creation units of Gold ETFs can be converted to actual gold but the reverse is not possible

Considering the pandemic distress on economic grounds, the rise in unemployment has lead to a decrease in incomes. The governments are providing economic stimulus packages. People as investors have rushed towards gold for investment. Generally, it is observed that gold as an asset class has a negative correlation concerning financial markets.

Considering the domestic scenario:

We have recently witnessed gold surpassing the 50,000 mark on NSE. Gold BeES was the first Gold ETF to be listed on the NSE in 2013. Demand in India for gold is still significantly limited to buying gold jewellery, bars and coins. This is because gold is seen as an investment pride from generation to generation in most of the Indian families. This year the scenario has changed as the demand for other gold investment avenues is gradually gaining momentum in India. In the Asian markets, India is one of the largest consumers of gold. The large workforce in these economies significantly impacts the investment and consumption of gold.

Considering the Global scenario:

Currently, Gold ETFs are in limelight. Gold is taking up a considerable share in every investor’s portfolio. The inflows into these financial market instruments have seen a surge of almost 30% globally this year. The highest inflows in gold ETFs came from North America followed by Europe and Asia. Gold is expected to reach Rs 60,000 levels by the end of this year. Apart from ETFs, there are several other investment avenues of Gold, and Gold Sovereign Bonds is one of them. The demand for investment in gold has outrun the demand for consumption of gold.

Investments in Gold ETFs are evident across the world, because of the liquidity they provide. As and when economies return to the recovery stage, the price of gold declines. It is essentially important to map the long term and short term goals of investment and decide whether gold as an investment in commodity or in other investment avenues is more suitable.


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