Experts predict that the demand for gold exchange traded funds (ETFs) will grow significantly in emerging countries in the coming years. India's population in particular is known for its affinity for gold and precious metals, underscoring the country´s position – along with China – as the world's largest gold consumer. In contrast to the purchase of physical precious metals, investors have few additional storage and protection costs when investing in ETFs. However, many informed observers have serious doubts about the structure of precious metal ETFs, and argue that they are no substitute for physical metal.
Indian demand for gold ETFs has skyrocketed in recent years. However, at 15 tonnes it is still lagging far behind the 900 tonnes of gold that is bought annually in physical form by Indians. Representatives of the World Gold Council recently said they expect Indian demand for gold ETFs to explode in the coming years. Above all, high inflation and growing concerns over further debasement of currencies around the world make gold and silver related investments attractive for many investors in emerging countries. Even the strong price correction in the commodities and precious metals sector has not changed this view. On the contrary, it became known in the past week that India's central bank could soon act as a buyer on open gold markets again. This news helped the gold price to stabilise to march towards resistance at $1,680 per troy ounce.
Central bank purchases often play an important role in lifting the mood among investors in gold markets. Central banks in developing countries have been increasing buyers of gold in the last few years – with India, China, Mexico, Saudi Arabia, Russia and South Korea the largest net buyers. European central banks are also no longer net sellers of the yellow metal. In addition to rising global inflation expectations, precious metals like gold and silver are expected to further benefit from today´s economic problems since they – unlike many other asset classes – have no credit risk. Europe's sovereign debt crisis continue to loom large in investors’ minds – with Josef Ackermann, head of Deutsche Bank, preparing his bank for an imminent Greek default.
Gold and silver serve investors as safe havens in economically uncertain times when they are held in the form of physical stocks. Investors would be well advised if they – contrary to what some other experts recommend – buy precious metals in physical form and store them safely.
Roman Baudzus
Originally published on Goldmoney.com here
