GOLD ETFs OR PHYSICAL GOLD: WHAT'S A SMARTER STRATEGY?

Gold ETFs offer a viable cost-effective alternative, offering safety and liquidity

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India is set to consume about $70 billion worth of gold in 2025, based on current prices and past trends. While concerns over widening current account deficit persist, gold remains a financial buffer for households, helping them withstand economic turmoil. Indian households hold an estimated $2.5 trillion (₹220 trillion) in gold, with prices surging over 38% in a year, adding $1 trillion to their wealth—offsetting losses in equities. However, despite economists' concerns about low liquidation, cultural and sentimental factors deter Indians from selling their gold.

Enter gold ETFs

Gold exchange traded funds (ETFs) present an alternative. If even a fraction of Indian household gold holdings were in the form of gold ETF units, investors would benefit from superior liquidity and easier replenishment compared to physical gold. A government initiative encouraging 10-20% of all gold holdings in ETFs could enhance the productive use of gold and improve tax compliance. Gold ETF units could also serve as an efficient collateral for asset creation.