The way Indians invest in gold is undergoing a significant transformation. While buying traditional gold jewelry has always been a preferred choice, a shift towards Gold ETFs and other digital gold options is becoming increasingly visible.
Jewelry Demand Declining Steadily
In recent years, the demand for gold jewelry in India has shown a downward trend. Data from the World Gold Council indicates that 610 tonnes of gold jewelry were purchased in 2021. This figure dropped to 600 tonnes in 2022, further reduced to 575 tonnes in 2023, and is estimated to decline to 563 tonnes in 2024. This marks an approximate 7% decline in jewelry demand compared to 2022.
The primary reason behind this decline is the sharp rise in gold prices. In 2024 alone, gold prices surged by nearly 15%, making jewelry purchases more expensive. Additionally, making charges, which can range from 10% to 25% of the gold’s price, are becoming a deterrent for buyers. Moreover, the younger generation now views gold more as an investment asset rather than a traditional family possession.
Gold ETFs Emerging as a Preferred Choice
While the demand for gold bars and coins has seen minor fluctuations, Gold ETFs are witnessing exponential growth. In 2021, India saw the purchase of 186 tonnes of gold bars and coins. This figure dipped to 173 tonnes in 2022 but bounced back to 185 tonnes in 2023. The demand is projected to increase to 239 tonnes in 2024.
Despite this, financial gold products like Gold ETFs are proving to be more attractive due to their convenience and ease of trading. Experts believe that the current surge in gold bars and coins is a temporary reaction to global geopolitical uncertainties and price fluctuations.
Record-Breaking Growth in Gold ETFs
The most remarkable growth has been recorded in Gold ETFs. According to data from the Association of Mutual Funds in India (AMFI):
- In 2022, investments in Gold ETFs amounted to Rs 460 crore.
- This surged to Rs 2,919 crore in 2023.
- In 2024, inflows skyrocketed to Rs 9,225 crore, marking a massive 216% jump.
This surge is primarily due to the convenience of investing in Gold ETFs. Unlike physical gold, there are no concerns about storage or making charges. Investors can buy and sell Gold ETFs on stock exchanges at any time, making it an ideal choice for younger, tech-savvy investors.
Tax Reforms Fueling the Shift
Revisions in the tax structure through the Union Budget 2024 have also contributed to the increasing popularity of Gold ETFs. Previously, Gold ETFs were subject to a 20% Long-Term Capital Gains (LTCG) tax if held for over three years. However, this rule has changed:
- LTCG tax is now applicable after just 12 months.
- The tax rate has been reduced to 12.5%, without indexation benefits.
On the other hand, for physical gold, including jewelry and gold bars, the holding period for LTCG benefits is still 24 months. This tax advantage has encouraged investors to shift their focus towards Gold ETFs and other digital gold platforms.
Future Outlook for Gold Investment
While gold jewelry will always hold cultural and traditional significance in India, especially during weddings and festivals, the investment landscape is evolving. Gold ETFs and digital gold investments are expected to continue growing at a rapid pace.
Financial gold options are viewed as safer, more convenient, and tax-efficient, making them the preferred choice for a new generation of investors. This trend is likely to shape the future of gold investments in India in the coming years.