While gold investment does affect Current Account Deficit, it's a myth that ETF gold investment will not have the same effect.
ETFs are mandated by law (SEBI) to buy gold or equivalent contracts for the money invested with them (minus the operations cost). The source can be domestic or international market depending where the supply lies. They don't keep buying indefinitely - they just buy small amounts at higher price pushing up the price of gold. In this era of open markets, obviously it makes no sense to buy at higher price domestically what is available at cheaper price internationally. In fact, BSE is more fair in gold price than your neighborhood jeweler!! The fact that gold supply is limited is the reason it has been used as a currency base for millenia. In that sense, gold investment whether in physical or paper form has the same effect on CAD.
It's interesting to note that the failure to link the paper with underlying assets was the reason NSEL fraud happened and several investors lost money with silver. https://en.wikipedia.org/wiki/National_Spot_Exchange#FRAUD
Quoting from http://www.bseindia.com/download/etf/GOLDETFsthruBSE.zip
ETFs are mandated by law (SEBI) to buy gold or equivalent contracts for the money invested with them (minus the operations cost). The source can be domestic or international market depending where the supply lies. They don't keep buying indefinitely - they just buy small amounts at higher price pushing up the price of gold. In this era of open markets, obviously it makes no sense to buy at higher price domestically what is available at cheaper price internationally. In fact, BSE is more fair in gold price than your neighborhood jeweler!! The fact that gold supply is limited is the reason it has been used as a currency base for millenia. In that sense, gold investment whether in physical or paper form has the same effect on CAD.
It's interesting to note that the failure to link the paper with underlying assets was the reason NSEL fraud happened and several investors lost money with silver. https://en.wikipedia.org/wiki/National_Spot_Exchange#FRAUD
Quoting from http://www.bseindia.com/download/etf/GOLDETFsthruBSE.zip
- Gold ETF is a financial product that is available for trading on stock exchanges and represents ownership of underlying gold assets
- You can now convert even 10 units to 10 gms physical gold
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