India Demand for Gold ETFs Rises on Festival

April 25, 2012 at 15:30

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Indian investments in gold exchange-traded funds surged 44% Tuesday on the auspicious buying occasion of Akshaya Tritiya, even as fewer customers walked into gold jewelry shops.

The trade value of gold ETFs, or paper gold, on India’s National Stock Exchange rose to 6.08 billion rupees ($115.8 million) from 4.23 billion rupees a year earlier, while the total number of units traded on the bourse grew 10% to 2.2 million.

Though sales of gold in physical form, such as jewelry, coins or bullion bars, account for more than 90% of the business in the world’s largest consumer, the jump in ETF trade marks a shift in buying patterns.

Gold ETFs were first launched in India in early 2007.

“The young generation now prefers to invest online rather than go to jewelers, which is increasing the demand for paper gold,” said Harish Galipelli, head of research at commodity brokerage firm JRG Wealth Management.

Urban consumers not only prefer to purchase from the comfort of their homes but also see better value in ETFs as they are sure of the purity of the precious metal and it avoids costs charged for making jewelry.

“Gold has become an asset class which is a must-have in many people’s portfolio,” said Gnananskhar Thiagarajan, director at Commtrendz Research.

Typically, buyers crowd into jewelers’ shops on Akshaya Tritiya as they believe gold purchases made on that day would multiply their wealth. However, only a few filtered into gold markets on the festival day this year.

Prithviraj Kothari, president of the Bombay Bullion Association, said physical sales of gold during the Akshaya Tritiya festival this year was “not more than 10-12 tons,” compared with more than 20 tons last year.

Jewelry sales have likely suffered as new taxes imposed in the federal budget last month as well as a weakening of the rupee against the U.S. dollar pushed local gold prices to near-record levels seen last September.

Local gold prices are above 29,000 rupees per 10 grams.

Finance Minister Pranab Mukherjee is expected to roll back some of the tax proposals in the budget, after he met with striking jewelers earlier this month.