Whalesbook
Digital gold purchases in India saw an 80% decline in October, reaching the year's lowest point. UPI transactions for digital gold fell by 61% to Rs 550 crore, down from Rs 1,410 crore in September, following warnings from the Securities and Exchange Board of India (SEBI) about the investment's unregulated nature.
Digital gold sales in India experienced a significant downturn in October, with transaction volumes dropping by nearly 80 percent. The value of digital gold purchased via UPI, the most popular payment method, fell by 61 percent to Rs 550 crore, marking the lowest level for the year. This decline follows direct warnings from the Securities and Exchange Board of India (SEBI) to investors, highlighting that digital gold is not a regulated investment vehicle in the country.
Influencers on social media also played a role, cautioning consumers about the risks of investing in digital gold, particularly the difficulty in withdrawing funds or gold if platforms cease operations. Previously, digital gold sales had been on a steady rise throughout 2023, climbing from Rs 762 crore in January to Rs 1,410 crore in September, driven by factors like gold's safe-haven status, ease of purchase, and fractional ownership options.
Despite the auspicious occasion of Dhanteras in October, a traditional time for gold purchases, the online platforms saw a sharp drop in transactions. Many fintech platforms facilitate digital gold purchases by tokenizing gold value through companies like MMTC-PAMP or SafeGold. However, these investments incur Goods and Services Tax (GST), storage costs, and platform fees, unlike regulated Gold Exchange Traded Funds (ETFs) which offer similar fractional ownership with fewer charges.
Impact
This sharp decline significantly impacts fintech platforms offering digital gold, payment apps that facilitate these transactions, and companies involved in gold tokenization. It also reflects a growing investor caution towards unregulated financial products. The dip might lead to a shift in investor preference towards regulated instruments like Gold ETFs.
Rating: 7/10
Difficult terms explained:
UPI: Unified Payments Interface, a real-time payment system developed by the National Payments Corporation of India.
SEBI: Securities and Exchange Board of India, the primary regulator of the securities market in India.
Digital Gold: A way to buy gold in small quantities online, where the gold purchased is held in demat accounts by third-party custodians.
Fintech: Financial Technology, companies that use technology to provide financial services.
Tokenised: In this context, it means representing the ownership of physical gold digitally.
MMTC-PAMP: A joint venture between India's MMTC Ltd. and Switzerland's PAMP SA, involved in assaying, refining, and minting of gold and silver.
Fractional Ownership: The ownership of an asset by more than one person, allowing individuals to buy small, affordable portions of a valuable asset like gold.
Dhanteras: A Hindu festival observed the day before Diwali, considered auspicious for purchasing gold, silver, or other valuables.
GST: Goods and Services Tax, a consumption tax imposed on most goods and services.
Gold ETFs: Gold Exchange Traded Funds, a type of mutual fund that tracks the price of gold and is traded on stock exchanges.
