Gold Demand Surges Amid Regulatory Grey Area

Ahead of the festive season in October, the demand for gold is expected to surge as Indian households view the metal as an auspicious wealth builder. According to the World Gold Council (WGC), the overall demand for gold is projected to improve with the onset of the festive and wedding season.

However, a shift away from traditional physical jewellery buying is underway, as investors are shifting towards regulated paper gold investments. Digital gold purchases have more than doubled year-over-year, despite Sebi's warning against investing in unregulated digital gold products.

The Securities and Exchange Board of India (Sebi) has warned that digital gold products operate outside its regulatory purview, leaving investors exposed to counterparty and operational risks. Despite this, the surge in demand for digital gold continues, with purchases averaging around Rs 2500 crore per month from June to August.

Regulatory talks are underway to bring the sector under the joint oversight of the Reserve Bank of India (RBI) and Sebi, which would mandate every digital unit to be strictly backed by physical bullion. Meanwhile, participation in gold futures and gold exchange-traded funds (ETFs) has seen a significant pickup, with Indian gold ETF inflows surging 67% month-on-month in August.