India's gold ETF trade volume exploding
The auspicious day of Dhanteras has ushered in this year's festival season in India. Dealers and analysts are confident that gold and silver sales will break new records in the course of the 2011 festivities. Noticeably, Indian trading volume in gold ETFs have exploded – clearly a bullish indicator.
The day of Dhanteras heralds the start of India's festival season, a time in which the country's inhabitants want to give their family members, friends and acquaintances unusual gifts. Above all, this traditionally includes gifts in the form of gold or silver jewellery. Dhanteras marks the beginning of the highly anticipated Diwali festival of lights, which lasts for five days. The word "Dhan" has the meaning of wealth, which is why Indians are prepared to hand out generous gifts on this special occasion. Gifts in the form of gold and silver are said to provide the recipients with good fortune in future life, with most Indians usually defining fortune with financial wealth and independence. Since Dhanteras can also be called the day of happiness, many Indians plan to establish a company, start new projects or purchase durable goods on this day. The Diwali festival of lights is traditionally followed by the Indian wedding season.
Indian gold dealers have been reporting for weeks that demand for gold and silver jewellery has jumped dramatically before the start of this year's festival season. Above all, silver has caught the attention of most Indians, following the white metal’s price correction of around 40% since the beginning of May. While Indians have always preferred the purchase of precious metals in physical form, institutional investors and stock market operators launched huge advertising campaigns in the past months for calling on Indians to invest their money in gold and silver exchange-traded funds (ETFs). Their sales volume has already increased significantly since the start of the festival season. Experts believe that the country's regulations were responsible for the preferred purchase of physical precious metals – mainly in the form of gold and silver jewellery. Indians were not allowed to buy bullion coins or bars before 1997.
India's strongly growing financial sector is aiming to benefit from the population's infatuation with precious metals. Expensive advertising campaigns have been unveiled by the industry, touting investments in gold and silver ETFs. The industry argues that costs associated with the purchase of ETF shares offer advantages over buying physical bullion. The campaign's success became more than obvious on the day of Dhanteras, when the trading volume of gold ETF shares listed on Indian exchanges exploding. NSE trade volume was seven times higher than normal and reached 6.36 billion rupees in value terms, with prices of Indian stock exchange listed ETF providers climbing by 1% to 2.5%.
The new Indian love affair with ETF products of all kinds should not make investors ignore the fact that these products carry significant risks. Simply put, ETF investors do not own a claim on precious metal; instead, they own part of the ETF. This simple distinction helps to explain why, as far as security and ownership guarantees are concerned, ownership of physical metal remains the best way to hold gold and silver.