The sharp rise in gold prices within the last one year has had a huge impact on the pockets of common people. Buying gold, especially on occasions like weddings, has become even more difficult for the middle class. The same issue was raised by MP Ramji Lal Suman in the Rajya Sabha and asked the government whether separate rates or rules can be considered for physical gold and gold ETFs so that those who buy physical gold can be saved from huge fluctuations in prices.
The member asked whether the government “will consider to set separate rates/rules for physical gold and gold ETFs in order to protect physical buyers from the fluctuations in the prices of gold?”.
Government’s reply on possibility of separate rules for physical gold and gold ETFs
Minister of State for Finance Pankaj Chaudhary clarified that the prices of gold ETFs are directly linked to physical gold. He said that gold ETFs are launched and managed under SEBI (Mutual Funds) Regulations, 1996 and the rule of investment in them is that these schemes invest in physical gold and exchange traded gold derivatives. Therefore, the prices of Gold ETF depend on the prices of physical gold and when the price of physical gold rises or falls, similar movements are seen in ETF as well.
Physical Gold vs Gold ETF
Physical gold i.e. gold bought in the form of gold bricks, coins or jewellery — it is traditionally the most popular means of investment and purchase. On the other hand, Gold ETF (Exchange Traded Fund) is a mutual fund scheme in which investors invest like shares through a demat account. It is an easy option to invest in gold in digital form, where the investor does not have to worry about keeping the gold safe or making charges. But the prices of both move in almost the same direction because the value of ETF is based on physical gold.
Huge jump in gold prices
At present, a big jump has been seen in the prices of gold in the international and domestic markets. On Tuesday, gold of 99.9% purity reached the level of Rs 1,01,695 per 10 grams in the bullion market. That is, gold prices have risen by more than 40% in a year.
The major reasons for this surge are international geopolitical tensions, fluctuations in the dollar index and US bond yields, continuous gold purchases by central banks and increasing demand at the domestic level.
Gold ETFs also have similar returns
Since the value of gold ETFs is directly linked to physical gold, they have also given a return of about 40% in the last one year.
Top performing ETFs include:
- UTI Gold ETF
- LIC Mutual Fund Gold ETF
- ICICI Prudential Gold ETF
These funds have given investors a return of up to 40.23%.
Summing up…
It has become clear from the government’s statement in Parliament that at present there is no plan to make separate rules for physical gold and gold ETFs. Because the prices of both are deeply interlinked and their fluctuations depend on international and domestic market conditions. It is important for investors and buyers to understand that whether it is physical gold or ETF, both are directly affected by the global prices of gold.
So, investors can make the right choice as per their need and convenience. While physical gold is suitable for tradition and emotional value, gold ETFs have emerged as a modern option in terms of safety and investment returns.