Jewellery demand down 7%, ETFs surge 216% as India shifts to financial gold

For centuries, gold has been more than just an ornament in Indian households—it has symbolised security and prosperity. However, the way Indians invest in gold is changing. While overall gold investments are rising, traditional physical gold, particularly jewellery, is losing its appeal.

Instead, financial gold—such as gold ETFs—is gaining traction.

Jewellery demand declines

Data from the World Gold Council shows that India’s gold jewellery demand has fallen for three consecutive years. It stood at 610 tonnes in 2021, dropped to 600 tonnes in 2022, declined further to 575 tonnes in 2023, and is estimated to fall to 563 tonnes in 2024—a 7% decline from 2022 levels.

The primary reason is soaring gold prices.

In 2024, gold prices in India surged over 15%, making jewellery purchases more expensive.

Making charges, which add 10-25% to the cost, further discourage buyers.

Additionally, younger investors are shifting away from viewing gold as a family heirloom, seeing it instead as a financial asset.

Bars and coins hold ground but trail financial gold

Investment demand for gold bars and coins has been relatively stable but is not keeping pace with financial gold products. Demand fell from 186 tonnes in 2021 to 173 tonnes in 2022. However, it rebounded to 185 tonnes in 2023 and surged to 239 tonnes in 2024, marking a 29% increase.

Experts believe this rise is a short-term reaction to geopolitical tensions and rising gold prices. Over the long term, bars and coins are losing ground to financial gold, which offers greater convenience.

Gold ETFs: The clear winner

The biggest shift is toward paper gold. Gold Exchange-Traded Funds (ETFs), which track gold prices without involving physical ownership, have seen a surge in popularity.

According to AMFI data, net inflows into gold ETFs jumped from ₹460 crore in 2022 to ₹2,919 crore in 2023, before skyrocketing 216% to ₹9,225 crore in 2024.

Several factors are driving this growth. Gold ETFs are easier to buy and sell than physical gold, with no making charges or storage concerns.

They are also highly liquid, allowing investors to trade them on stock exchanges at any time. This convenience is particularly appealing to urban and younger investors.

Tax changes favor financial gold

The 2024 Union Budget further accelerated this shift. Previously, long-term capital gains (LTCG) on gold ETFs were taxed at 20% with indexation if held for over three years.

Now, gold ETFs qualify as long-term assets if held for just 12 months and are taxed at a flat 12.5%, without indexation.

In contrast, physical gold—including jewellery, bars, and coins—still requires a 24-month holding period to qualify for LTCG benefits, making financial gold a more tax-efficient option.

What’s driving the shift?

Several factors are pushing Indians toward financial gold:

Rising prices: Higher gold prices, coupled with making charges (10-25%), make jewellery purchases costlier.

Convenience: Gold ETFs require no storage, security, or insurance, unlike physical gold.

Liquidity: ETFs can be bought and sold easily on stock exchanges, whereas selling jewellery or bars often involves losses or delays.

Tax benefits: The 2024 Budget lowered LTCG tax on gold ETFs to 12.5% after just 12 months, while physical gold requires a 24-month holding period for similar tax treatment.

Changing investor preferences: Young investors see gold as a financial asset rather than a family heirloom, preferring “paper gold” over “locker gold.”

The road ahead

While physical gold remains culturally significant, particularly for weddings and festivals, India’s gold market is gradually moving toward financialisation.

Experts believe that while jewellery will always have its place, the future of gold investment in India will be increasingly paper-based.