Indonesia bets on gold to deepen markets, but risks capital diversion

Indonesia is investing in gold to bolster its financial markets, but experts caution that this move could divert resources away from other productive assets. The government has introduced its first exchange-traded funds (ETFs) backed by physical gold, a move aimed at expanding the country’s gold market. This initiative was accompanied by the formation of the Indonesia Bullion Market Association (IBMA), described as a key player in integrating and deepening the nation’s bullion market.

Coordinating Economy Minister Airlangga Hartarto highlighted the government's broader mining downstreaming policy as the driving force behind these efforts. The IBMA is seen as a strategic organization, following the inauguration of Indonesia's first bullion banks in early 2025. These banks, managed by the state-owned pawnshop PT Pegadaian and the state-owned lender PT Bank Syariah Indonesia, currently handle 177 tonnes of gold assets, with PT Pegadaian holding 153 tonnes and PT Bank Syariah Indonesia (BSI) managing the remaining 24 tonnes.

Privately held gold, valued at approximately US$252 billion, accounts for around 1,800 tonnes in Indonesia. While the government's initiatives may increase gold investment within the financial system, analysts warn that this could shift capital away from other productive channels.