Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

The way forward for gold ETFs
Tue, 7 Aug Pre-Open

Since their launch, about five years back, Gold Exchange Traded Funds (ETFs) have been a preferred form of investing for many investors. This is reflected from the fact that the assets under management (AUM) for gold ETFs have crossed Rs 100 bn mark over the last five years. However, it seems that there are some hindrances in the current structure for the instrument to prosper further. Thus, some reforms are required to gain further market acceptance.

Let us have a look at the problem area's first. It may be noted that gold ETFs are required by regulation to hold physical gold only with no lending clause attached to it. And this results in opportunity cost foregone from loaning out the asset. True, that by the virtue of it, ETFs are structured to give investors exposure to gold without any undue risk. But when the ETFs hold gold in their vault they lose out on possible income arising from lending out the same. It also increases the storage cost. So, without any additional income investors actually lose out on some proportion of their gold return.

So, what could be the solution for this? It is simple. Allow ETFs to lend gold to credit worthy borrowers in a safe manner. There is a huge market for this in India. The potential borrowers of gold could be jewellers who have to stock huge amount of inventory. They can pledge rupee fixed deposits (FD) as collateral.

However, the said mechanism is exposed to the risk of default by the borrower. This can happen if the FDs are not of a sufficient amount to cover up as collateral. Hence, the lending norms have to be extremely stringent. One solution could be that the ETFs lend only to bullion banks who in turn can lend to these jewellers. Another option is to lend gold through stock exchanges. While the exact mechanics of the same may take some time to evolve it reduces the concentration risk of lending gold to a few banks.

Thus, it can be seen that the lending risk can be curbed to a certain extent though various measures. Also, if lending is allowed the ETFs could earn extra income which could eventually be given to the investors as dividends. If not, the storage cost would hurt investors' returns and the market acceptability of the instrument may eventually fade.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

What else is happening in the markets today? Dig in...

Equitymaster requests your view! Post a comment on "The way forward for gold ETFs". Click here!


Stock Market Updates

Sensex Trades Marginally Lower, Dow Futures Up by 174 Points (Today's Market)

May 14, 2021 12:30 pm

BSE Sensex is trading down by 29 points, while the NSE Nifty is trading down by 39 points.

Sensex Opens Flat; Asian Paints Rallies 7% Post Q4 Results (Today's Market)

May 14, 2021 09:30 am

Indian share markets open flat. The BSE Sensex opened down by 33 points, while the Nifty is trading lower by 14 points.

ADANI TOTAL GAS Share Price Down by 5%; BSE 500 Index Down 0.1% (Today's Market)

May 14, 2021 09:34 AM

ADANI TOTAL GAS share price is trading down by 5% and its current market price is Rs 1,330. The BSE 500 is down by 0.1%. The top gainers in the BSE 500 Index are ASIAN PAINTS (up 6.7%) and BANK OF INDIA (up 5.7%). The top losers are ADANI TOTAL GAS (down 5.2%) and VINATI ORGANICS (down 7.1%).

JINDAL STEEL & POWER Share Price Down by 5%; BSE METAL Index Down 2.4% (Today's Market)

May 14, 2021 09:32 AM

JINDAL STEEL & POWER share price is trading down by 5% and its current market price is Rs 466. The BSE METAL is down by 2.4%. The top losers are JINDAL STEEL & POWER (down 5.3%) and NMDC (down 5.3%).

BANK OF INDIA Share Price Up by 5%; BSE BANKEX Index Up 0.3% (Today's Market)

May 14, 2021 09:28 AM

BANK OF INDIA share price is trading up by 5% and its current market price is Rs 77. The BSE BANKEX is up by 0.3%. The top gainers in the BSE BANKEX Index is BANK OF INDIA (up 5.2%). The top losers is HDFC BANK (down 0.2%).

GRINDWELL NORTON Share Price Up by 8%; BSE CAPITAL GOODS Index Up 0.4% (Today's Market)

May 14, 2021 09:26 AM

GRINDWELL NORTON share price is trading up by 8% and its current market price is Rs 1,259. The BSE CAPITAL GOODS is up by 0.4%. The top gainers in the BSE CAPITAL GOODS Index is GRINDWELL NORTON (up 7.7%). The top losers are L&T (down 0.3%) and V GUARD INDUSTRIES (down 0.4%).

View More Indian Share Market News

Most Popular

Is Intraday Trading For You?(Fast Profits Daily)

May 13, 2021

Do you think you have what it takes to be an intraday trader? Find out in this video.

My Secret to Find Breakthrough Stocks(Fast Profits Daily)

May 7, 2021

I've used this trading technique for many years with great success. I'm sharing it with you today.

Are the Stock Markets Deaf to Covid Agony?(Profit Hunter)

May 6, 2021

Why are markets discounting the economic impact of Covid?

The Key to Profit from India's EV Revolution(Profit Hunter)

May 7, 2021

Stocks you must consider investing in before buying your first electric vehicle.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


May 14, 2021 (Close)