India's shiny new habit needs polish

Young Indians have taken a shine to digital gold that allows them to buy the metal in tiny amounts on their smartphones. Gold sold by fintech firms is not as tightly regulated as gold ETFs or sovereign gold bonds (SGBs), so its popularity has increased the urgency for stronger custody and audit monitoring. The industry is regulating itself and has sought GoI's help with oversight, which should prop up digital gold transaction volumes. Convenience of buying small amounts of gold all through the year has enormous scope to alter consumer behaviour. Most gold micro-savers are below 35, and their preferences could become mainstream as the cohort expands.

Before their recent retracement (about ₹14.7 per g in India on Wednesday), gold prices had rallied due to geopolitical uncertainty and had squeezed demand for traditional jewellery. Surging safe-haven demand for bullion has made the larger ticket size of jewellery unaffordable for many. Besides, jewellery sales are seasonal, which bunches up demand. Digital gold provides an alternative distribution channel without these legacy limitations. Beyond these, however, the habit of buying small amounts could help wean Indians off their obsession with gold as they are exposed to a wide array of financial savings options. Investor choice ought to improve if it is as convenient to buy gold as it is to buy stocks or bonds. India's energetic fintechs have products to cater to all tastes among retail investors.

Rules for digital gold under consideration will seek to enhance disclosure over vault practices through third-party audits. Digital gold must be backed by physical gold. Bullion holdings must not be hedged or held as reserves. Custody receipts must ensure gold remains allocated to the customer irrespective of the distributor. Independent inventory audits, vault security standards and insured storage are other aspects that need to be harmonised. Digital gold is a business model in search of regulation. GoI must deliver on the industry's legitimate expectations.