Gold has always held a special place in Indian households. From festivals to weddings, it is seen as both an investment and a symbol of tradition. But with prices of gold climbing more than 40 percent in the past year, it has become increasingly difficult for the middle class to afford large purchases. On Tuesday, the price of 99.9 percent purity gold touched Rs 1,01,695 per 10 grams in the bullion market, a level that has shaken many buyers.
This concern was raised in Parliament by Member of Parliament Ramji Lal Suman, who asked the government whether it would consider separate rules for physical gold and Gold ETFs to protect buyers of physical gold from such sharp swings in price.
Responding to the question, Minister of State for Finance Pankaj Chaudhary made it clear that the value of Gold ETFs is directly linked to physical gold. Gold ETFs are regulated under SEBI’s mutual fund rules and are structured to invest in both physical gold and exchange traded gold derivatives. Because of this link, their prices move almost exactly in line with physical gold. If gold prices rise, ETFs rise, and if gold prices fall, ETFs fall too.
This means that creating different rules for physical gold and Gold ETFs would not solve the problem of price fluctuations since both reflect the same underlying asset. The government has therefore indicated that there are no plans to set different rates or policies for the two.
For the common investor, it is important to understand the difference between physical gold and ETFs. Physical gold is purchased in the form of jewellery, coins or bricks, which often involves making charges and concerns about safe storage. Gold ETFs, on the other hand, are digital units traded like shares through a demat account. They provide the same return as physical gold but remove the hassle of storage and additional charges. Over the past year, top performing Gold ETFs such as UTI Gold ETF, LIC Mutual Fund Gold ETF and ICICI Prudential Gold ETF have all delivered returns of around 40 percent, in line with the rise in physical gold prices.
The sharp rise in gold prices has been driven by multiple global factors. International geopolitical tensions, movements in the dollar index, changes in US bond yields, and large scale gold purchases by central banks have all contributed to the surge. At the same time, domestic demand for gold remains strong, which adds further upward pressure on prices.
The takeaway for investors is clear. Whether buying physical gold for cultural reasons or investing in Gold ETFs for convenience, both options are subject to the same price movements. There may be differences in ease of access, safety and cost, but when it comes to returns, they are almost identical.
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