Is Digital Gold Safe?

K. ARAVIND

Consumers need to ask themselves the question of how safe it is to buy gold as the digital gold market (digital gold market) grows in India. The lack of a regulatory authority is likely to affect the transparency of the digital gold market.

Digital gold is gold that is bought online and stored in online accounts through various platforms such as Paytm and Google Pay. Companies such as Augmont, Motilal Oswal and PhonePay also provide this service.

It is estimated that between eight and nine tonnes of gold are sold annually through these platforms. Approximately three tons of gold reach the account holders’ homes each year as part of this transaction. Sales of gold jewellery and coins online are on the rise.

Companies that sell gold online offer free storage services. These companies also facilitate the conversion of gold in a digital account into jewellery. For example, Digital Gold India provides digital gold purchasing services through Carat Lane and Candere, a subsidiary of Kalyan Jewelers.

MMTC-PAMP distributes and stores gold sold by online wallets such as Paytm, Google Pay and PhonePay. Augmont is another leading gold distribution company. Augmont has its own gold refinery. Augmont Gold sells in collaboration with various e-commerce companies and wallets.

Consumers want to buy digital gold because they can avoid the security problem of holding gold in physical form. Buying gold digitally is less expensive than buying it in physical form. As it is stored digitally, gold can be sold and converted into physical form at any time through an online account. Proceeds from the sale of gold through e-wallets will be credited to the e-wallet account.

As soon as a customer buys gold digitally, the equivalent physical amount of gold is credited to his account. The guarantee is given by the trustee of the company. But this does not always have to be the case.

These firms deal with gold transactions under the Shop & Establishment Act. Who will the customer approach if such institutions fail to pay for the purchased gold? These companies do not operate under the control of any regulatory authority.

There are no legal restrictions on gold demat accounts. There is currently no system in place to investigate illegal transactions in these accounts.
The only way to secure such transactions is to handle digital gold accounts through Depository Participants. Digital Gold accounts will be safer if the government’s move to open depository accounts and start holding gold through them becomes a reality.

Sovereign gold bonds, gold ETFs and gold savings funds are currently safer than digital gold accounts. Concerns about the safety of gold do not apply to bonds and ETFs. Sovereign gold bonds are issued by the Reserve Bank. You can also invest in gold bonds in demat form. Investors have the opportunity to buy these at the time of sale of Reserve Bank bonds. These bonds are listed on the stock exchanges so there is an opportunity to buy them online. Gold ETFs provide the facility to deposit gold in demat form.