Asian Markets Ease Gold ETF Restrictions Amid Geopolitical Uncertainty

Gold as a Safe Haven in a Turbulent World

Amidst escalating geopolitical tensions and persistent policy uncertainties, gold's status as a safe-haven asset is becoming increasingly prominent. Gold has been one of the strongest-performing major commodities this year, driven by increased demand from global central banks and investors, with global prices peaking in April at all-time highs.

Facing growing investor appetite for gold allocation, two of Asia's largest emerging markets are taking steps to adapt to market changes by easing regulatory restrictions.

India Considers Relaxing Gold ETF Restrictions for Pension Funds

India's pension regulator is considering removing restrictions on certain types of investments, including gold exchange-traded funds (ETFs). Retirement fund managers, overseeing approximately $177 billion, have requested permission to invest in gold ETFs, as well as relaxations on rules regarding Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts. Currently, alternative assets like gold, real estate, and infrastructure are capped at 5% of a pension fund's total investments.

Indian gold ETFs have seen significant growth in 2024, with some of the largest, such as Nippon India ETF Gold, SBI ETF Gold, and HDFC Gold ETF, recording gains of nearly 30% year-to-date. Removing the 5% cap could provide a further boost to the country's already burgeoning gold investment sector.

According to recent data from Kavita Chacko, Head of Research at the World Gold Council in India, Indian gold ETFs marked a third consecutive month of net inflows in July, driven by global geopolitical uncertainties. This positive trend has continued into August, with preliminary data showing even higher inflows in the first two weeks.

At the end of July, the cumulative Assets Under Management (AUM) of Indian gold ETFs reached INR 676 billion ($7.85 billion), a 96% year-on-year increase, with total gold holdings rising to 68 tonnes, up 1.2 tonnes for the month. Sustained interest in gold ETFs indicates steady growth in new accounts, with 215,000 new accounts added in July, bringing the total to 7.86 million accounts, a 42% year-on-year increase.

Vietnam Opens Gold Market to Narrow Local-Global Price Gap

In addition to India, Vietnam is also opening its gold market, ending the state's monopoly on importing and exporting raw gold and producing gold bars. This move is likely to increase supply and narrow the gap between local and global prices.

Under a new decree, companies and commercial banks licensed by the central bank can produce gold bars. The Vietnamese central bank will also issue licenses for importing raw gold and exporting gold bars. Previously, the state had sole control over gold bar production and raw gold trade abroad.

In May, Vietnamese General Secretary To Lam stated that the domestic gold market lacks flexibility and does not align with global supply and demand, negatively impacting the economy. He called for measures to open the market, increase supply, and combat cross-border smuggling.

Local prices in Vietnam are often significantly higher than global prices, despite repeated directives from the government to the central bank and other institutions to stabilize the market and reduce the disparity. As of Wednesday, the price of gold in Vietnam was VND 128 million ($4,857) per tael, which equates to approximately $4,028 per troy ounce. In comparison, the global spot price is around $3,380.

Under the new regime, companies must have a registered capital of at least VND 1 trillion, while commercial banks need VND 5 trillion to be considered for a license. Additionally, any imported raw gold must contain a purity of at least 99.5% and can only be used for legally defined purposes, such as producing gold bars and jewelry.

According to the World Gold Council, Vietnam's gold consumption demand was 55.3 tonnes last year, compared to 39.8 tonnes in 2020.

The easing of these regulatory restrictions in both India and Vietnam highlights the growing role of gold in investor portfolios and underscores its importance as a safe haven in times of economic and geopolitical turmoil. As these markets adapt to changing dynamics, they are creating new opportunities for investors and contributing to the overall stability of the global gold market.