Gold ETFs Hit Record Holdings Amid Rising Risks and Regulatory Gaps

Market optimism for gold hit a record in late 2024, but conflicting data highlights underlying tensions. Bloomberg data marks November 2024 as a peak with 3,932 tons held globally in gold ETFs, reflecting strong investor resilience during geopolitical strain and equity volatility. Yet, by December 2024, the World Gold Council reported a significantly lower figure of 3,195 tonnes valued at $263 billion.

This discrepancy likely stems from timing and regional aggregation differences. November's higher figure captured inflows concentrated in Asia, particularly China and India, where investors rapidly shifted assets amid equity weakness. December's report, however, segmented holdings differently, showing North America held 1,627 tonnes (51%) and Europe 1,268 tonnes, with Asia's emerging markets contributing only 73 tonnes in China by year-end. The gap underscores how quickly sentiment can shift and how regional flows dominate headlines.

October 2025 further amplified the divergence: global gold ETFs saw a massive $8.2 billion inflow, driven by North American and Asian investors seeking safety as geopolitical risks escalated and gold traded at record volumes. This surge reinforced gold's appeal as a non-yielding asset during market stress, yet the inconsistency between November and December 2024 figures tempers enthusiasm. While central bank purchases of 1,045 tonnes in 2024 provided long-term support, short-term ETF flows remain volatile and data-dependent.

Investors should treat the conflicting records as a warning sign. Record inflows signal deepening risk aversion, but the data clash suggests market narratives may outpace granular reality. Until clarity emerges on regional timing differences, positions should reflect skepticism about valuation tails and liquidity buffers.

Gold ETF Dynamics and Market Sentiment

Asia's central bank accumulation and retail buying powered a major surge in gold ETF demand last year. Official data shows Asian authorities added roughly 1,045 tonnes in 2024 alone, with China and India leading retail interest amid stock market volatility and geopolitical concerns. This drove record inflows, pushing total global gold-backed ETF holdings to nearly 3,932 tons by November 2024. Retail investors in the region were particularly active, viewing gold as a hedge against currency weakness.

However, liquidity concerns emerged for the largest gold ETF, SPDR Gold Shares (GLD). The fund traded below its indicative net asset value (INAV) on 152 days in 2024, a stark indicator of potential trading friction and market stress. While this discount eased in mid-2025, its frequency highlights underlying liquidity risks during periods of market turbulence.

Gold's strong performance faces a critical dependency on monetary policy. With real U.S. Treasury yields remaining below 0.5%, the asset has benefited from falling interest rates and central bank easing expectations. This environment supports non-yielding assets like gold. Yet this support is fragile; any reversal toward rate hikes could quickly undermine gold's momentum by strengthening the dollar and increasing opportunity costs for bullion holders. Investors must monitor Federal Reserve signaling closely for any hint of policy tightening.

Regulatory and Custody Risks

SEBI explicitly warned in November 2025 that digital gold investments, such as those offered by Paytm and Google Pay, are unregulated and lack securities market safeguards available to traditional financial instruments. This warning came despite the digital gold market's explosive growth, with sales surging to Rs 66,230 crores in India's fiscal year 2024-25-a staggering 89% increase year-over-year. The rapid expansion occurred while SEBI maintained its 2015 authority to regulate commodity exchanges but failed to extend oversight to e-commerce and payment platforms.

The regulatory vacuum leaves investors in digital gold vulnerable to custodial risks. Platforms operate without verified vault audit standards or equivalent regulatory scrutiny, relying instead on unregulated third-party storage. This creates significant counterparty and operational risks, as investors cannot verify whether physical gold backing their digital holdings is properly stored or audited. The situation is exacerbated by SEBI's 2021 ban on stock brokers offering digital gold, which simply shifted the market to less-regulated channels without addressing core vulnerabilities.

Gold ETFs like SPDR Gold Shares offer a regulated alternative under SEBI's standardized framework. They provide transparency and investor protections, including exchange trading and purity guarantees. However, even these regulated vehicles carry inherent risks like counterparty exposure and tracking errors. This contrast highlights a critical divide: while ETFs benefit from regulatory oversight, digital gold's unregulated nature exposes investors to unique custodial risks despite its convenience and growth momentum.

Downside Scenarios and Portfolio Implications

Gold's current rally faces a critical vulnerability: rising real yields. US Treasury real yields recently approached 1%, directly challenging gold's appeal as an attractive alternative to interest-bearing bonds. Historically, when real yields climb above this threshold, gold's performance typically weakens significantly as the opportunity cost of holding non-yielding assets increases. This shift could rapidly reverse the strong investor inflows driving holdings to a record 3,932 tons.

Beyond macro factors, operational risks threaten the digital gold ecosystem. Platforms like Paytm and Google Pay saw digital gold sales surge 89% YoY to Rs 66,230 crores in FY 24-25, yet remain largely unregulated. SEBI's inability to oversee custodians and trustees creates a regulatory vacuum where technical failures or custodial issues could trigger sudden redemptions and investor losses. Such disruptions would undermine confidence in all digital gold vehicles, including ETFs.

For portfolio construction, we recommend limiting physical gold ETF exposure to no more than 5% of the overall allocation. This cap reflects ongoing concerns about custody verification and potential counterparty risks. Investors must actively monitor two key thresholds: US real yields remaining below 0.5% and central bank purchase momentum. A sustained rise in real yields above 1% combined with slowing central bank accumulation would signal deteriorating conditions warranting position reduction.

We also advise avoiding leveraged and inverse gold ETFs. These products suffer from significant compounding decay in sideways markets and can lose value rapidly during periods of high volatility, creating substantial risk of principal erosion over time. The priority remains maintaining capital preservation through assets with clearer liquidity profiles and less complex risk dynamics.

Portfolio adjustments should follow strict thresholds: reduce physical gold positions when real yields persist above 1% or central bank purchases show sustained weakness, and maintain a defensive posture if digital platform failures emerge in major markets like India. The current environment demands careful calibration between gold's hedge properties and its vulnerability to rising real rates.