India's Regulatory Shift: How Domestic Gold and Silver Pricing Could Transform ETF Transparency and Investor Confidence

India's Securities and Exchange Board of India (SEBI) has proposed a pivotal regulatory change requiring asset management companies (AMCs) to value gold and silver holdings using spot prices from domestic commodity exchanges. This move, outlined in a 2025 consultation paper, aims to eliminate valuation disparities and enhance transparency across mutual funds and ETFs—a development poised to bolster investor confidence and drive inflows into India's precious metals markets.

The Regulatory Move: Transparency as a Catalyst

SEBI's proposal seeks to standardize valuation practices by mandating the use of domestic spot prices, which are typically less volatile and more reflective of local market dynamics compared to international benchmarks. By unifying valuation standards, the regulator aims to eliminate discrepancies arising from inconsistent pricing mechanisms. The consultation period closed on August 6, 2025, signaling a potential near-term implementation.

The move is particularly timely given the rapid growth of gold ETFs in India. In June 2025, inflows into these products reached ₹20.81 billion (approximately $242.1 million)—a tenfold increase from the previous month and a five-month high. This surge underscores investor demand for gold as a hedge against global trade uncertainties and inflationary pressures. SEBI's reforms could institutionalize this momentum by reducing perceived risks tied to valuation inconsistencies, thereby attracting even more capital.

Gold prices in India have edged closer to the psychological ₹1 lakh threshold, stabilizing near ₹99,290 per 10 grams by June 2025. This trend reflects inflation concerns and a weakening rupee, which amplify the appeal of gold as a store of value.

Silver's Dual Dynamics: Industrial Demand vs. Market Volatility

While gold ETFs benefit from macroeconomic tailwinds, silver's performance is more nuanced. Despite hitting a 14-year high earlier in 2025, silver prices dipped to ₹1,08,800 per kilogram in June amid profit-booking and subdued industrial demand. However, the Silver Institute forecasts a fifth consecutive year of global silver deficits in 2025, driven by record industrial consumption in renewable energy, electronics, and automotive sectors.

Investors must weigh silver's cyclical risks against its long-term structural advantages. A rebound in global manufacturing activity or a pickup in solar energy investments could reinvigorate demand, making silver ETFs a compelling play on economic recovery.

Why This Matters for Investors

SEBI's reforms address a critical pain point: trust. By aligning valuations with domestic markets, the regulator reduces reliance on volatile international benchmarks, which can be skewed by geopolitical events or currency fluctuations. This clarity is particularly vital for retail investors, who may have hesitated to enter gold/silver ETFs due to opaque pricing structures.

The proposed changes also support India's broader goal of developing a robust commodities market. A standardized valuation framework could position domestic gold and silver ETFs as preferred instruments for both domestic and foreign investors seeking exposure to Asia's largest precious metals market.

Investment Considerations

1. Gold ETFs: With global trade tensions and inflation concerns persisting, gold remains a top-tier safe-haven asset. Investors should consider overweighting gold ETFs, especially as SEBI's reforms could further solidify their credibility.
2. Silver ETFs: While riskier due to industrial demand volatility, silver's structural deficit and green energy ties make it a strategic long-term bet. Monitor macroeconomic indicators like industrial output and central bank policies.
3. Diversification: Pair gold exposure with defensive equities or bonds to mitigate downside risks from sudden price corrections.

Conclusion

SEBI's proposed mandate marks a significant step toward modernizing India's financial markets. By prioritizing transparency in valuation, the regulator is not only addressing investor concerns but also laying the groundwork for sustained growth in the precious metals ETF sector. For investors, this creates an opportune entry point into assets that are both resilient and increasingly regulated—a rare combination in today's uncertain landscape.

As gold edges toward ₹1 lakh and silver's fundamentals strengthen, the time to act is now. But remember: monitor macro trends closely, and let data—not speculation—guide your decisions.