Investment in Gold and Gold Exchange Traded Funds ETFs An Exploratory Study in Himachal Pradesh India

Abstract

xvi newlineABSTRACT newlineGold, in India, has always invoked a sense of cultural and sentimental attachment, and several studies stated that its consumption and investment in the country is very different from that in other parts of the world. India, with an annual demand of around 800 tonnes, is the largest importer and nearly the largest consumer of gold in the world. About 89 percent of gold demand is met by imports, 10 percent by recycled gold and only 1 percent is met by domestically produced gold every year. High imports and low recycling of gold constantly make the economy face unsavory effects of rising current account deficit due to which domestic currency devalues, inflation soars, and interest rates rise. In such a scenario, it is imperative firstly to increase the level of recycled gold, secondly to reduce imports, thirdly to divert investment demand of gold towards gold-backed substitutes like gold Exchange Traded Funds (ETFs), Sovereign Gold Bonds and India Gold Coins/Bar etc. newlineThe present study explored the household behavior for saving/investment for gold and gold ETFs by identifying, evaluating and establishing the (i) household investor preferences, (ii) factors responsible for investor behavior, and (iii) household preferences for Gold Monetization Scheme (GMS) and gold-backed products with suggestions to increase people s investment into gold ETFs and GMS in Himachal Pradesh. For this, a one-time field study was done in Himachal Pradesh, a culturally rich north Indian state with remarkable economic and social advancements. The study used purposive sampling with multistage simple random sampling technique to gather data from 1000 households from urban district headquarters, cities, and towns of 10 urban districts in the state. Relative frequencies determined that gold jewelry was the most preferred option in low investment group, but its priority decreased in medium and high groups. In high investment group, bank deposits were the most preferred instrument whereas gold jewelry, insurance policies and gold ETFs