Gold ETFs schemes have witnessed an exodus of funds over the first three months of this year as investors returned to riskier assets amid record high gold prices. The net outflows for the quarter ended March 31, 2023, stood at Rs 232 crore.
Amid this backdrop, should you look to invest in the bullion via ETFs and gold funds or look for greener pastures?
Notwithstanding the current trends, popularity of gold ETFs is set to rise as gold prices rise on concerns about the global economy, Praveen Singh – Assistant Vice President, Fundamental Currencies and Commodities analyst at Sharekhan by BNP Paribas told ET Markets.
He has a constructive view on gold in 2023. The metal is expected to rise to $2,300-$2,500 in the coming months, Singh said, suggesting investors to allocate 5% to 10% to gold in their portfolios.
The trend in India towards Gold ETFs has been in contrast to the global trends.
Indian Gold ETFs witnessed outflows of 0.6 tonnes in March despite global gold ETFs witnessing record inflows of 32 tonnes during the month.
India’s total Q1 ETF outflows stood at 0.80 million tonnes, Singh informed. “The trend back home may be more about scaling back purchases amid record high prices rather than losing faith altogether,” he further said.Domestic gold prices are up nearly 15% in the last one year.
The outflows in gold ETFs and Gold ETF schemes could be because of consumers turning price conscious and they may be ploughing back money into risk assets after corrections, Singh said.
The outflows from gold ETFs increased in March as many investors booked profits with rising gold prices, which touched Rs 61,000 mark per 10 grams, Mahendra Luniya, Chairperson, Vighnaharta Gold.
Gold ETFs were widely used for parking funds during periods of stock market decline and investors always look for more profits and tend to switch their investment decisions as situations emerge, Luniya said.
“With gold reaching Rs 61,000 mark in India or $2000 in the international markets, investors feel that the yellow metal may rest at these levels. Hence, some investors are booking profits and exiting their position in gold for other investment instruments,” the Vighnaharta Gold Chairman said.
In the international markets, gold is hovering near $2,000, which is a huge psychological barrier in dollar terms, Singh said.
“A retail customer who wants gold immediately for their own use may buy it in the form of jewellery. While those who are thinking of buying gold jewellery after 6 months to 1 year should hedge the gold prices with digital gold or ETFs as the trend in gold is bullish,” Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart advised.
Singh said that gold is an insurance in turbulent times and will safeguard wealth in the event of Black Swan crises. “Recent banking crisis is a case in point. With elevated inflation and weakening economies, some investment in gold is must. Rest of the allocation should be done on a staggered basis, which means buying into dips,” he added.
Gold ETFs have been able to find traction among investors with January inflows growing by 57% year-on-year (YoY) to Rs 260 crore. Meanwhile, February inflows were up 26% YoY as the number of folios increased by 20,000.
According to Association of Mutual Fund of India (AMFI), the number of ETF folios in November 2022 stood at 46.67 lakhs, which was up nearly 30% from September 2018.
Gold ETFs are playing an important role as people shun physical gold, Rahul Kalantri of Mehta Equities said. By the end of March 2023, the total AUM of all gold ETFs had increased by 10% to $220 billion, he informed.
However, it is worth noting that investors are more inclined towards sovereign gold bonds (SGBs) as compared to ETFs, Luniya informed.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)