Investors strike ‘gold’ with ETFs as prices skyrocket

Bengaluru: Gold is generally seen as a ‘safe haven’ investment. And the prices of the yellow metal have surged to record highs in recent weeks, amid global geopolitical uncertainties, as well as upheaval caused due to United States President Donald Trump’s tariff wars. Just last week, gold crossed Rs 9,000 per gram in the Delhi markets, and is touching new peaks in global commodity exchanges as well.

This also means that Gold Exchange Traded Funds (ETFs), which are linked to the price of the precious metal and are traded on the stock exchanges, are now popular investments.

“Amid global uncertainties, gold remains a preferred safe-haven asset. For Indian investors, Gold ETFs present a practical and cost-effective way to gain exposure to gold, especially as central bank demand remains strong,” said Ajit Mishra, Senior Vice President, Research at Religare Broking Ltd. He added that Gold ETFs are a well-balanced defensive investment choice.

The first Gold ETF launched in India was Gold BeES, introduced in 2007 by Benchmark Mutual Fund. It allowed investors to gain exposure to the price of gold without having to physically own the metal. The net fund-flow share of gold ETFs is expected to rise to 12.9% in 2025 from 2.3% in 2022.

The amount of money flowing in and out of Gold ETFs increased from Rs 640 crore in December 2024 to Rs 1,980 crore in February 2025. This is higher than domestic equity ETFs which did Rs 1,944 crore for the same months, as per data by Geojit Financial.

Gold ETFs saw an inflow of Rs 14,948 crore in the ongoing financial year (2024-25), up nearly three times from 2023-24. The instrument reported a 95.2% increase in assets under management year-on-year for February 2025, at Rs 55,677 crore.

“Gold ETFs are one of the best alternative investments for someone looking to accumulate in an SIP (Systematic Investment Plan) form. This would help investors in averaging their cost at correction and get healthier return over a period of time,” said Pranav Mer, Vice President, Commodity & Currency Research, JM Financial.

In India, the top-performing Gold ETFs like those offered by Nippon India and HDFC have market caps of Rs 19,555.96 crore and Rs 8,071.51 crore respectively. This supports robust liquidity, which has been a concern in the recent past. The liquidity of a gold ETF is influenced by the liquidity of the physical gold it tracks.

However, analysts also advised caution.

“Investors should avoid jumping into gold purely based on its recent performance,” said Chethan Shenoy, head of Product and Research at Anand Rathi Wealth Ltd. Gold in comparison with equity (benchmark Nifty 50) has had a lower efficiency ratio over the past five years, showcasing the volatility of the metal. For investors, gold’s returns have fluctuated wildly.

The Sovereign Gold bond issued by the Reserve Bank of India had recently been discounted due to high borrowing costs taken by the exchequer. The final redemption price has been set at Rs 8,634 per gram, based on the average closing price of gold recorded on March 11-13, 2025.