Rutam Vora
AHMEDABAD (Commodity Online): India's gold demand is on a makeover shift as the yellow metal is seen turning paper with rising demand of Gold ETFs in the country. According to an industry estimate, the gold holding by ETFs in India has surged to 11-12 tonnes, almost double against last year.

The pace of growth in gold ETFs is in stark opposition with the sinking physical gold imports by once world's largest gold consumer. In a telephonic interaction with CommodityOnline, Suresh Hundia, President, Bombay Bullion Association (BBA) maintained that gold imports in the country have been on a decline since the start of current fiscal, mainly on account of high prices.

International gold prices have remained in the range of USD 1120 per ounce and USD 1220 per ounce since April this year. The prices are expected to scale up further till December considering uncertainty in US economy and weak equity markets globally.

India's gold imports have averaged at approximately 18 tonnes during April to July. In August, the imports are expected to remain around 15-20 tonnes. This is in stark contrast of 800 tonnes of gold that India imported in the year 2006. Only last year, the imports were recorded at 439 tonnes, informed Hundia adding that the ETFs in the country have not fared well as was expected.

However, industry experts are of the opinion that the demand for gold is diverted to the ETFs and is expected to scale up further as physical gold holding fades away due to high prices.

We have seen increased ETF buying for past several months. The investors find ETFs more convenient to buy as most of the Indian Gold ETFs offer 1 gm unit to buy. This way, volumes may improve in retail ETFs as more and more investors are expected to get into action, an official with an ETF offering company informed.

Another aspect that has fuelled the investors' sentiments is the convenience of gold holding in the form of ETFs, which do not require vault facilities and security measures. Secondly, the investor demand for ETFs will also support gold prices, hence the larger participation can be ensured with better returns.

This prompts more buyers for gold with investment purpose. According to recent data by World Gold Council, investment demand for gold in India has rose more than three-times to 92.5 tonnes since the start of the year till June, from the previous 25.4 tonnes during the corresponding period.

This is expected to scale up further with rising participation in ETFs and more such products being in the pipeline.