BackDigital Gold in Emerging Markets: What are the opportunities and challenges for investors?
Digital gold as an investment type has emerged as a result of the digital revolutions in the gold market.
PremiumDigital gold as an investment type has emerged as a result of the digital revolution in the gold market. With digital gold, investors may hold gold without the necessity for a physical safe or bank vault, as the name of the product indicates. One of the main benefits of buying digital gold is that it minimizes worries about purity, storage, and security because these aspects are assured. However, it also comes with potential risks including the possibility of fraud, market risk, expenses, limitations on redemption, and tax repercussions. As a result, how investors can deal with opportunities and challenges when it comes to digital gold in emerging markets, let’s know from our industry experts.
Praveen Singh – AVP, Fundamental currencies and Commodities analyst at Sharekhan by BNP Paribas
Considering the case of India as an emerging market, the country is blessed with young population of around 44 crores, most of these are technical savvy and are becoming increasingly aware of investments and savings. The process is gathering pace with rise of Crypto currencies. Small but consistent investments can go a long way in gaining financial independence and realizing dreams with passage of time. Emerging markets have mostly young population.
These young people are the primary engines of growth of digital economy. Still, some research indicates that investment awareness among youth is somewhat lacking. People are generally aware of investment avenues like Crypto currencies; however, regulatory hurdles or lack of clarity on that front discourage them. That’s where both challenges and opportunities for digital gold can be found.
Hareesh V, Head of Commodities at Geojit Financial Services
Both physical gold and digital gold have their own merits and demerits.
People can choose physical gold only if he/she needs gold in the physical form at a future date. For eg, for making jewelry for marriage or occasions etc. While buying physical gold, the initial cost would be higher as compared to digital form due to making and other handling charges.
So, if the basic idea of holding gold is only for investment purposes, buying gold in digital form would be more suitable.
Prathamesh Mallya, AVP- Research, Non-Agri Commodities, and Currencies, Angel One
Digital gold is one of the best ways of investing in the asset class as its potential to give returns is immense when compared to physical mode of investing.
India is an emerging market and introduction of sovereign gold bonds by government of India is one of the best ways to diversify into gold rather than buying physical gold.
Opportunity
1) Helps the investors to divest into digital gold and accumulate over different phases resulting in value buying of the asset
2) Investors can look digital gold as a medium to diversify into productive use rather than investing in physical mode of investment.
3) Gives the investors an opportunity to earn interest and also need not worry about hackles of storage if one buys physical gold.
4) Saves lot of foreign exchange in buying physical gold as India imports all the gold from other countries
Challenges
1) Awareness of investing in digital avenues of investing in digital gold is a challenge
2) Liquidity in secondary markets is also a challenge despite SOVEREIGN GOLD BONDS being listed in India for a long time.
3) Discouraging Indian consumers to buy physical gold will be a challenge.
Ronit Harisingani, Co-Founder, Spare8
Opportunities -
Financial inclusion / Frictionless onboarding
Digital gold has the potential to provide greater financial inclusion in emerging markets. In many countries, access to financial services is limited, making it difficult for individuals to save and invest. Spare8, an app built to put the power of gold savings at your fingertips, has leveraged upon the UPI (Unified Payments Interface) stack and has been able to create one of the fastest on-boarding processes ever (< 30 secs). No KYC, no scanning of documents, no bank details required for users to start their investment journey making it seamless for anyone looking forward to kick starting their journey toward financial freedom.
Since UPI has now gone global and will be accessible in countries like Singapore, Australia, Canada,Qatar, US, Saudi Arabia, United Arab Emirates and the United Kingdom the digitisation of gold in these markets is very much possible.
The process is fairly simple and users will be able to invest with as little as Re. 1.
Challenges
Lack of regulation -
As with any new asset class, the process to set up regulations is a long one, especially in emerging markets. As such, it is important for investors to only use reputable digital gold platforms and to remain vigilant against potential scams. For instance, Spare8 has tied up with Augmont, India's number one digital gold provider where users' gold is secured in Sequel Vaults and is monitored by an independent trustee.
Vivek Banka, Founding Team @GoalTeller
Over the past few years, the government has demonstrated a clear intent to regulate gold and curb issues related to import and smuggling. To this end, they introduced Sovereign Gold Bonds (SGBs), which make it easier and more attractive for individuals to participate in gold investment as an alternative to buying physical gold.
Participating digitally through SGBs has numerous benefits, including an annual interest income and tax-free returns at the end of maturity (typically 8 years), plus or minus the return of gold. Gold as an asset class is particularly important for individuals looking to derisk themselves from global geopolitical risks, especially in the current environment where there are discussions of a parallel currency to the US Dollar.
One of the biggest challenges of investing in digital gold is the inability to have it close at hand for use as jewelry, while still enjoying the benefits of investing in it. However, investing in gold through digital means has its advantages, such as ease of purchase, lower storage costs, and transparency in transactions. Additionally, digital gold platforms often offer the option to convert your digital gold into physical gold or jewelry, giving you the best of both worlds.
Overall, while investing in physical gold has its own charm, digital gold offers a convenient and cost-effective alternative that can help individuals benefit from the potential growth of gold as an asset class, while avoiding the risks and challenges associated with physical gold ownership.
Sonali Bansal, Founder - Mayaa Money
Young millennials' perceptions of investment possibilities have changed over time from being seen as a "to-do tax-saving activity" to "a step towards building a secured future" and for future contingencies, thanks in large part to technology. The simplicity of use and affordable ticket size are making digital gold a preferred investment choice. Earlier, buying gold was aspirational as only parents could afford the large ticket size, but with digital gold having a low-ticket size, a large number of teenagers are buying it, and urging parents to treat it like a family investment option. Apps like Mayaa Money allow family members to invest and pool in together to achieve their goals, which was not possible before.
It is proven to be a fantastic diversification investment choice with steady long-term profits and no upper limit on purchases since it is a much more stable investment than others and also offers the option of investing lesser amounts, a guarantee of 24K gold purity, simple accessibility, making it a more lucrative option. Furthermore, digital gold and ETFs are more liquid investment possibilities than gold bonds, which have a longer investment time. The traditional use case of using digital gold as loan collateral still stands. The majority also struggle with gold storage since it raises the danger of theft and costs money to keep big quantities of precious metal in one location. Your investment in digital gold is securely held in a monitored vault under the control of reputable trustees.
The lack of tangibility and the fact that digital gold is still a nascent concept in the country, may serve as a barrier to growth but it is slowly changing as people gain more awareness around it. and active steps need to be taken to promote its benefits as a safe and reliable investment option, to further expedite digital gold adoption among the population.
Pratapsingh Nathani, chairman and MD at Beacon Trusteeship
The precious metals like Gold and Silver are traditionally bought in physical form for centuries. Now with the emergence of technology there has been the emergence of new systems to store Gold & Silver remotely. Over time, Gold has always been used the a hedge against war and markets. Whenever there is a market crash we get to observe a sharp rise in the prices of gold.
Over time, we have also discovered the ways and means to trade in gold and liquidate it quickly to realize its value and this has moved from the barter trade to our bank accounts directly to our accounts. Due to the instant liquidation value of gold, its appreciated as one of the best mediums of storage of one’s wealth.
Due to its instant liquidation value and the blending of technology its now possible to store gold online with the help of a custodian, who safely enables the storage of this, a trustee and an escrow. There are several platforms that have come up with the above idea and selling Gold online.
With the help of such a blend of physical and digital, now phygital mediums enable people to buy gold online even in very low denominations. This mitigates the risk of loss and theft as the gold is secured in high security vaults with no such risks.
Digital Gold sales are taking off due to the ease of storage and transacting it just like a money transfer backed with gold held just like a demat account.
However, challenges with Digital Gold is that the companies selling this gold online need to have the credibility and networth to support the business of selling Gold Online.
Shrey Jain, Founder and CEO – SAS Online
Investing in gold has been considered a safe option compared to debt and equity. While gold coins, bullion, and jewelry have traditionally been popular choices for investment in India. In addition to physical gold, there are now alternative options available for investing in the precious metal. In recent years, the digital revolution has extended its reach to the gold market, giving rise to a new form of investment - digital gold.
As the name suggests, digital gold is a product that is bought and sold online, allowing investors to own gold without the need for a physical safe or bank locker. One of the key advantages of investing in digital gold is that it addresses concerns related to storage, security, and purity, as these factors are guaranteed.
If we talk about opportunities for Digital gold in emerging markets, the remarkable price rally of gold in recent months has made it increasingly unaffordable for many buyers. As a result, traditional forms of gold investment may not be as feasible for individuals with limited budgets or those seeking more affordable options. As a result, digital gold has gained significant traction among investors who are seeking to diversify their portfolios and capitalize on the potential of gold as a safe-haven asset.
Investing in digital gold can be done through various avenues, including Sovereign Gold Bond (SGBs) and Exchange-Traded Funds (ETFs).
Unlike physical gold, which provides direct ownership and possession of tangible gold but may involve storage and security costs, SGBs and Gold ETFs offer ownership of gold in a digital form that eliminates the concerns over storage, security, and purity, which are guaranteed.
One of the notable advantages of investing in SGBs is the flexibility in the investment amount, as investors can buy as low as 1 gram of gold. One can enjoy capital gain and interest both and also can be used as collateral for loans too.
Similarly, Gold ETFs are known for their high liquidity and ease of buying and selling on exchange platforms. This makes them highly liquid, allowing investors to enter or exit their positions quickly and efficiently. But investing in Gold ETFs involve expense ratio and demat account requirements
In conclusion, when considering investment options in gold, investors should carefully assess their investment objectives, risk tolerance, and consulting with a qualified financial professional can provide valuable guidance in making informed investment decisions in the gold market.
Utkarsh Sinha managing director Bexley advisors
Digital gold represents an opportunity for broadening both retail and institutional portfolios: particularly for high-volume transactors, the logistics of physical gold represents a challenge that limits participation in the gold market.
Particularly for retail buyers who are transacting in smaller amounts, physical gold still holds its allure and is manageable. However, digital gold purchase - particularly over certain personal finance apps - represents an opportunity for micro-transactions that can accumulate over time and afford the opportunity to then obtain physical gold or trade-in for jewelry, which is can lead to an aggregated acceleration in demand for the industry.
S, K, Hozefa, CEO Tradeplus
Digital gold provides a convenient and secure way for individuals to invest in gold without physical delivery, which is appealing to Indians who consider gold a crucial component of their household assets. However, the lack of an official regulatory body means there is an element of risk involved. Regulators are looking to frame guidelines for the sector, a step in the right direction to build a transparent and seamless digital ecosystem in the country.
Additionally, it is important for individuals to be aware of the possibility of delivery and making charges. Sovereign Gold Bonds and Gold ETFs could be a safer and better way for Digital Gold. The digital gold market has great potential, but proper regulation and safeguards are necessary to protect investors.
CA Manish Mishra, Virtual CFO
Investing in digital gold presents both opportunities and challenges for investors. While it offers greater accessibility, affordability, liquidity, transparency, and security compared to physical gold and gold ETFs, it also carries risks such as the risk of fraud, market risk, charges, redemption restrictions, and tax implications.
To address these risks, regulatory frameworks are necessary to ensure that digital gold providers are reputable and comply with relevant regulations. For instance, SEBI has issued guidelines for digital gold providers in India to ensure transparency, disclosures, customer protection, and risk management.
As digital gold becomes increasingly popular, it's important for investors to carefully consider the risks and challenges associated with this investment option, and ensure that the digital gold provider is reputable and compliant with relevant regulations. While digital gold has its advantages over physical gold and gold ETFs, investors must weigh the potential benefits against the risks before making a decision.
Overall, investors should be aware of the risks associated with digital gold, and carefully evaluate their investment goals and consider the potential benefits and drawbacks before making a decision.
Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart Ltd
Technologies are growing rapidly, which has made transactions easy for people. Some time ago, people had to go get money from ATMs or from banks and spend hard cash. Using digital money, D-mats, and bank accounts has made life easier. Paytm and PhonePe offer a platform for investing in digital gold. You can buy it online, and the minimum value of buying and selling digital gold is Rs. 1. The small investment amount may attract investors on a large scale.
The increased household income combined with a growing tech-savvy population has increased the demand for digital gold. Before 2020, the average consumption of gold in India was around 750 tons a year; now the consumption has crossed 1000 tons a year, which indicates the participation of investors in gold is increasing rapidly. The use of technology, ease of transaction, and safety of storage may attract new investors to digital gold. It will save investors from the threat of damage and theft, and the high liquidity gives them the facility to withdraw money at any time.
Opportunity in digital gold
Investors can take delivery of digital gold at home.
An investment of a small amount is possible.
It can be used as collateral for a loan.
The purity of digital gold is 24K.
It is 100% safe and insured during electronic storage time.
It can be exchanged for physical jewelry and gold coins
Challenges:
Most of the platforms for digital gold have a limit for investment of up to 2 lacs.
There is no official regulating body like SEBI or RBI.
Delivery and Making charges can apply.
Some companies offer limited storage periods.
Suman Bannerjee, CIO, Hedonova
Countries with emerging economies are increasingly turning to digital gold as a means of investing in the traditional asset without the logistical challenges and high transaction fees of physical gold. However, investors in these markets need to be aware of the risks, including market volatility and the potential for fraudulent activities. Regulatory bodies must also ensure that digital gold markets are transparent, fair, and accessible to all investors.
Umesh Mohanan, Executive Director & CEO, Indel Money
Digital gold is emerging as a smart investment option. It’s a safe and convenient way to diversify an investment portfolio. At a time when gold price has breached Rs.60, 000 per 10 gram mark, digital gold offers customers the option to buy gold for even Re.1. Customers also have the option to take delivery of the gold in physical form. Digital gold is independently certified, hence ensuring quality and purity assurance.
In addition, digital gold is highly liquid in nature. Banking on the growth of the digital economy and consumer awareness, the digital gold market is likely to expand further. A robust regulatory framework needs to be set up to boost the digital gold ecosystem in India. We have plans to roll out gold loans on digital gold in near future and we are currently carrying out a survey to evaluate the present digital gold adoption scenario to identify the target markets.
Neha Khanna, Director, ValPro and Enablers
With the shift in purchasing power to the generation of 28-45 years, digital gold has become an asset class given the flexibility it provides on purchase value in a market where gold prices have been rising. Digital gold also reduces the associated effort of safekeeping and physical storage in a particular city. This also adds an advantage for this demographic which may move across cities during their work tenure.
However, gold is not the most popular asset class for the target audience and hence may not find stickiness for banks and platforms offering the same. Hence, acquiring customers for digital gold purchase may be expensive given the potential revenue one can generate from such transactions.
Mahendra Luniya, Chairman. Vighnaharta Gold Pvt. Ltd
Digital gold has the potential to revolutionize the financial landscape of emerging markets, offering a secure and accessible alternative to traditional gold investment options. The opportunities digital gold has to offer are tremendous to investors; who get better returns than physical gold investment; and governments; who would get economic support of liquidity in the economy. However, the adoption and integration of these technologies also present unique challenges.
On one hand, digital gold can provide a hedge against inflation and currency fluctuations, offering a stable and globally recognized store of value that can be easily exchanged and transferred across borders.
However, the use of digital gold also requires a level of technical literacy and access to technology that may be lacking in some emerging markets. Furthermore, regulatory frameworks and financial infrastructures may not be equipped to handle the unique characteristics and risks of digital gold.
Therefore, in order to fully realize the great potential of digital gold in emerging markets, it is crucial for stakeholders to address these regulatory and technical challenges and work towards creating a more inclusive and supportive ecosystem. This can include investing in education and infrastructure, clear regulation, and fostering partnerships between industry, government, and civil society to ensure that the benefits of digital gold are accessible to all.
Pawan Gupta, director, PP Jewellers
Digital gold has the potential to revolutionize the gold market in emerging economies. While gold is considered a valuable asset in many cultures, access to physical gold is often limited by issues such as high costs, limited supply, and security concerns. However, digital gold offers a promising alternative for individuals in emerging markets to invest in gold without the constraints of physical gold ownership.
One of the main opportunities presented by digital gold in emerging markets is its accessibility. Through digital gold platforms, investors can buy and sell gold in small denominations, allowing even those with limited financial means to participate. Additionally, digital gold can be easily traded, providing investors with a more liquid asset than physical gold.
Another significant advantage of digital gold is its potential to provide financial inclusion to unbanked populations. By facilitating access to digital gold, individuals can engage in transactions that would otherwise be impossible due to a lack of formal banking infrastructure.
However, there are also several challenges to the adoption of digital gold in emerging markets. One of the most significant challenges is a lack of awareness and trust in the concept. Many individuals in emerging markets are unfamiliar with digital gold, and they may be hesitant to invest in an asset that they cannot physically hold or see.
Another challenge is regulatory and compliance issues. The regulatory environment in emerging markets can be complex and difficult to navigate, and digital gold platforms must adhere to strict guidelines to operate legally.
Finally, there is also the risk of cyber fraud and security concerns. As digital gold transactions are conducted online, there is always a risk of fraud or hacking, and this can deter investors from engaging with digital gold platforms.
Overall, digital gold presents exciting opportunities for investors in emerging markets, particularly for those who face barriers to physical gold ownership. However, addressing the challenges associated with its adoption will be critical for digital gold platforms to succeed in these markets.
Vikas Singh, MD & CEO of MMTC-PAMP
Digital Gold & now Silver, are new generation products which allow our customers to buy precious metals in the most efficient way possible. Ease of access, unmatched liquidity, zero making/transaction charges and safety by storage in bank-grade secure vaults & under independent trusteeship are offerings that are unmatched in this sector.
We believe these products will help build financial inclusion by catering to all profiles of customers, esp. micro investors who have the flexibility to buy when and as often they like, even with as little as Re 1.
Vijay Malhotra, Chief Sales Officer & Co-founder SahiBandhu
Attraction to gold in India is historic with a growing popularity of buying digital gold online over the past few years. Digital gold refers to a form of digital currency that is backed by actual physical gold reserves. In emerging markets, digital gold can offer several opportunities for investors, traders, and individuals looking to protect their wealth. Digital gold’s popularity skyrocketed during the COVID-19 pandemic when people looked for online avenues to purchase gold.
One of the key advantages of digital gold is that it provides a safe haven for investors during times of economic and political uncertainty. This is particularly relevant in emerging markets, where there may be higher levels of volatility and risk. Digital gold can also offer greater accessibility and liquidity compared to physical gold, which entails tactile mode of purchase from the store.
However, there are also several challenges associated with digital gold in emerging markets. One of the primary challenges is the limitation of regulatory frameworks and oversight, which can make it challenging to ensure the integrity of the gold reserves backing the digital currency exceptions like sovereign gold bonds solve this issue. Additionally, there may be issues related to transparency and accountability, which can make it difficult for investors to fully understand the risks associated with investing in digital gold.
With this, we have also anticipated a huge growth in availing of gold loans. People are coming forward to address their financial emergencies and taking gold loans against not only physical gold but also digital gold for instance in FY 2022 sovereign gold bonds worth ₹13000/-cr. were issued by RBI. Gold-Tech platforms such as SahiBandhu can offer Gold Loan against sovereign gold bonds to cater to this audience.
Isha Sapra, Co-founder & CEO, ausper
“Buying gold in India is not a luxury but a necessity."
However, the way we buy gold is archaic, still heavily dependent on how much we can save before making a purchase since financing is not allowed and 99.5% of the category still operates offline.
The desire and demand for gold is likely to skyrocket in the next few years - with increasing income levels, ever-expanding wedding market and geo-political situation. However, on the other hand the ability to buy gold will continue to diminish owing to the ever increasing gold rates that have grown 12X in the last 20 years. This gap between demand and ability will become wider, creating a need for solutions like digital gold.
Digital gold has proven to be the perfect answer to deterrents of gold consumption in India.
Ability to buy & ease of access: With increasing gold rates, gold has become increasingly inaccessible. Digital gold tokenizes gold into fractions that can be bought easily.
Safety & security: Digital gold companies are regulated. Mandatory vaulting of physical gold, presence of trustees and transparent documentation and systems, all make digital gold a safe choice.
Easy to own and keep: Digital gold removes the physicality associated with gold, thus making it safe and easy to own and keep.
Liquidity: It is extremely easy to sell digital gold, thus making it a great asset if one puts a premium on liquidity.
Easy to convert to physical gold: Digital gold is also a great way to create a corpus for ultimate jewellery purchase. Most of the digital gold players have now partnered with multiple jewellery brands to aid redemption.
Appeals to the modern consumer: There are a number of new-age tech driven solutions in the markets that have been built on Digital Gold to drive younger consumers to consider gold.
While there are multiple advantages to buying digital gold, the difference between buying and selling rates and GST implications makes it lack lustre in the short term. Additionally, most of the solutions built around digital gold focus only on investment and not consumption. This alienates a large population of gold jewellery buyers (especially women), as these solutions do not attempt to solve their problems.
Renisha Chainani, Head-Research, Augmont
Indians are the world's second-largest buyers of physical gold. Apart from jewellery, we utilize it as a present and as part of every household's asset. For individuals looking to buy 24k pure gold with the eventual option of delivery, Digital gold is a safe, convenient, and hassle-free choice. Digital gold is seen as a very secure and cost-effective investment alternative, which can be bought 24*7 for as low as Re1.
As a relatively new product in India, digital gold is currently not governed by any laws. However, Augmont has established a number of independent checks and balances through a Security Trustee and an Independent Custodian to protect the interests of our customers. As a result, customers' gold balances are always secure and they are not exposed to any risk when using Augmont platform.
V.L.A. Ambala (SEBI Registered Research Analyst). Stock Market Today
Digital gold refers to digital assets that are backed by physical gold. In emerging markets l, like India - digital gold is getting more popular. Digital Gold presents significant opportunities and challenges. Here are some of them:
Opportunities:
Access to gold:
Digital gold provides an opportunity for individuals in emerging markets to invest in gold, which has traditionally been a challenge due to high costs and limited availability.
Security:
Digital gold is secure and can be stored safely online, reducing the risk of theft or loss associated with physical gold.
Accessibility: Digital gold can be bought and sold easily online, making it more accessible to investors in emerging markets.
Transparency: Digital gold provides transparency in pricing and transactions, ensuring that investors get fair prices for their investments.
Return on Investment: Return on investment is almost similar to physical gold. Also there at least 2%-2.5% (variable as per govt offerings) growth is fixed at the time.if maturity. Income generation through also get some benefits in tax.
Challenges:
Lack of awareness: Many people in emerging markets may not be aware of digital gold and its benefits, making it difficult for them to invest however awareness graph has increased in recent years.
Regulatory challenges: Digital gold is a relatively new concept and regulatory frameworks may not be in place in some emerging markets. But in Indian Market sovereign gold bonds are very much popular among the safe investment opportunities as It's backed by Indian govt.
Volatility:
The value of gold can be volatile, and this can be magnified in digital gold markets due to the ease of buying and selling however it doesn't reduce its important.
Fraud and scams: The digital gold market can be susceptible to fraud and scams, and investors need to be cautious when investing. They should not share their depositary login detail (DEMAT accounts) with anyone. They need to follow the cyber fraud security rules.
In summary, digital gold presents significant opportunities for investors in emerging markets to invest in gold and diversify their portfolios. However, there are also challenges that need to be addressed, such as regulatory frameworks and the risk of fraud and scams.
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