Looking to invest in gold? Know how lucrative it is in an unregulated environment in India

As almost no holiday or family celebration in India is celebrated without gold, the yellow metal – especially gold jewelry – is traditionally treated as the most valuable asset in India.

The mode of investing in gold, however, is changing over the years, as protecting physical gold involves expenses – like renting lockers, buying insurance, etc. – and investment options like digital gold have become safer and more convenient ways to invest.

Gaurav Mathur, Founder and Managing Director of SafeGold describes the pros and cons of gold as an alternative investment option in India:

Digital gold as an alternative investment option

Looking at data from the past 20-30 years, portfolios that have a 5-10% gold allocation have outperformed in terms of return and volatility. India is one of the largest markets in the world for physical gold and it is the main investment for a large part of the population. Digital gold is an ideal investment for consumers who want the option of eventually having physical gold delivered and who have a 1-3 year (or longer) outlook. Clients wishing to speculate on short-term price movements should use futures and options or similar financial products.

Relationship between inflation and gold prices

Although the common belief is that high inflation drives gold prices, the data tells us that real interest rates (nominal interest rate – inflation) have the biggest impact on gold prices. For example, a market like Turkey, where inflation is skyrocketing and nominal interest rates are stable, has seen the price of gold in Turkish Lira skyrocket. However, in the United States, where interest rates have been raised sharply in response to high levels of inflation, gold prices have been subdued due to expectations of a rise in the real interest rate. .

Operating in an unregulated ecosystem

Although there is no formal regulatory framework (gold is not regulated by the RBI) for digital gold, major players use an independent trustee and custodian to protect client interests – similar to the structure followed by regulated financial products. As the popularity of the product grows, the industry is proactively engaging with authorities to develop a regulatory framework for digital gold and related products.

Regulatory Obstacles for the Token System in India

The broader digital asset industry suffers from regulatory ambiguity. It is clear that there is a significant customer demand for such products, which will require the authorities to eventually develop an appropriate regulatory framework. Various government statements indicate that they expect a common global regulatory ecosystem to develop for digital assets and based on this, Indian regulators will develop a framework for India.

Analytics on consumption habits

According to data from SafeGold, the average ticket size is Rs 900 for digital gold and around 100 million consumers have purchased digital gold in the last 5 years. More and more customers are opting for regular small purchases that are exchanged for physical coins or jewelry (through partner jewelers) after an average of 18 months.

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