Over the past 18 months, gold has experienced a remarkable surge in price, drawing heightened interest from investors worldwide. As market volatility increased, gold emerged as a preferred alternative asset to safeguard portfolios traditionally dominated by equities and debt instruments.
Despite the sharp price rise last year, gold-backed ETFs underperformed, while physical gold investment gained momentum – particularly in key markets such as India and China. Interestingly, jewellery demand declined, likely due to elevated prices and shifting consumer priorities.
This year marked a dramatic shift in sentiment, especially following the return of US President Donald Trump to the White House. His aggressive stance on tariffs and the resulting uncertainty triggered widespread speculation, prompting investors to seek refuge in gold.
In response, global ETFs saw a significant revival, adding nearly 400 tonnes in the first half of the year alone. This surge sent a clear signal: gold remains a resilient asset capable of weathering diverse market challenges and geopolitical shocks.
Changing investment behaviour in Asia
Gold ETFs have long been a mature investment product in developed markets. However, in physical gold hubs such as Asia, trading volumes have traditionally remained low, as investors tend to favour tangible gold over exchangetraded alternatives. This trend is beginning to shift. In the first six months of this year, China and India collectively accumulated over 100 tonnes of gold through ETFs – a notable development that signals a transformation in investor behaviour and growing acceptance of financial gold products in traditionally physical markets.
China and India collectively represent around 34% of global gold demand, positioning them as the most influential physical gold markets in the world. This demand is primarily driven by purchases of jewellery, bars and coins, reflecting a deep-seated cultural reverence for gold.
In both countries, gold is cherished not only as a symbol of wealth and beauty but also as an auspicious element central to religious rituals and social customs. This centuries-old relationship with gold continues to endure and is expected to remain strong.
Despite rising gold prices, demand has shown remarkable resilience, underpinned by robust economic growth. As purchasing power increases and younger generations enter the workforce, the perception of gold is evolving. This ‘new pedigree’ of investors increasingly views gold not just as a traditional ornament but as a strategic asset – valued for its ability to provide portfolio stability and longterm financial security.
China
The assets under management (AUM) in gold-related investment products in China, including gold ETFs and other structured gold funds, are estimated to be over US$16.5 billion. In China, multi-asset funds that include gold typically allocate 5% to 15% of their portfolio to gold or gold related instruments, depending on the fund’s strategy and market outlook.
While the Chinese equity market has shown notable improvement over the past year, the Shanghai Composite Index remains nearly 40% below its all time high. The index peaked at around 6,000 points in 2007, during a period of rapid economic expansion when GDP growth exceeded 10% annually. However, the 2008 global financial crisis triggered a sharp correction, pulling the index down to nearly 2,000 points.
Since then, despite China’s economy expanding significantly in size and complexity, the equity market has only partially recovered. This prolonged period of subdued returns on investment (ROI) has led investors to reassess their strategies and increasingly turn to alternative assets to diversify and stabilise portfolios.
The ongoing tariff tensions with the US have further amplified concerns about long-term external disruptions. In response, asset managers are actively seeking instruments – such as gold and other non-correlated assets – that can offer resilience amid uncertainty.
India
Until 2020, gold ETFs in India were largely considered niche products, primarily favoured by seasoned investors. Although electronic trading systems had long made market access easy, retail participation remained limited due to a lack of awareness. Physical gold continued to dominate investor preference – a trend that persists even today. However, the landscape began to shift as asset management companies introduced innovative products that made gold investing more accessible. This helped broaden investor interest and paved the way for wider adoption of gold-backed financial instruments.
As of June 2025, the total assets under management (AUM) in Hybrid Mutual Funds comprising gold – primarily through Multi-Asset Allocation Funds – in India is estimated to be around US$5 billion. These funds invest in a mix of equity, debt and gold ETFs, offering diversified exposure and risk-adjusted returns. These funds typically maintain a minimum of 10% exposure to gold, though the exact allocation may vary based on market conditions and fund strategy.
According to data from the Association of Mutual Funds in India (AMFI), an industry body, there has been a steady rise in retail folios within Multi Asset Allocation Funds, indicating growing investor awareness about the benefits of diversification – particularly through gold. Many of these funds have delivered five-year annualised returns in the range of 8% to 10%, with relatively lower volatility due to their diversified exposure across equity, debt and gold. The sharp rally in gold prices, coupled with recent declines in equity indices, has prompted retail investors to increasingly favour hybrid funds that include gold, as a strategy to better manage market risk.
Conclusion
While Asia boasts the largest physical gold market globally, its financial gold market remains relatively underdeveloped compared to those of the West. However, the region presents immense growth potential, fuelled by rapid economic expansion and a digitally savvy younger generation. Asset managers are increasingly turning to diversification strategies to protect investor interests. Beyond traditional powerhouses such as China and India, alternative assets such as cryptocurrencies and tokenised gold are gaining traction across Asian markets. For instance, SBI Holdings – Japan’s largest financial firm – has filed for a gold-crypto hybrid ETF, allocating over 50% of the fund to gold to offset crypto volatility.
This kind of product innovation reflects a growing appetite for digital assets, with gold serving as a stabilising force amid heightened market fluctuations.
