Assets under gold ETFs jump to Rs 5,000 cr amid fears of economic headwinds

Data from Morningstar showed that assets under management of gold Exchange Traded Funds have been rising since April this year

Assets managed by gold exchange traded funds rose to Rs 5,079.22 crore in the first four months of the current fiscal, a period during which stock market dropped 3 per cent as investors turned to the yellow metal amid economic headwinds.

Data from Morningstar showed that assets under management (AUM) of gold ETFs (Exchange Traded Funds) have been rising since April this year.

In contrast, the 30-share Sensex has fallen 1,191.79 points or 3 per cent during the April-July period. The BSE's benchmark index suffered a massive drop of nearly 5 per cent in July compared to the previous month.

"For a long time, investors have stayed away from investing in gold ETFs/funds, as gold prices, after making a high around 2012, has retracted and remained range-bound since then. However, there has been a reversal in trend this year, with gold prices again moving up," Himanshu Srivastava, Senior Research Analyst and Manager Research, Morningstar Investment Adviser India said.

While gold as an asset class acts as a hedge against inflation, it is also a safe haven in times of economic turmoil, he said, adding that the global economy has been facing headwinds in the recent times, gold has once again found its safe haven appeal.

In April, gold ETFs AUM stood at Rs 4,594.06 crore and rose to Rs 4,606.69 crore in May. It further climbed to Rs 4,931.16 crore and Rs 5,079.22 crore in June and July, respectively, as per the data.

V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities said the US-China trade war, plunging bond yields and fears of recession have attracted safe haven buying in gold.

Gold ETFs are passive investment instruments that are based on price movements and investments in physical gold.

In this financial year, gold has given spectacular returns to investors and has outperformed stock markets handsomely, he added.

He also noted that gold would continue to attract buyers as economic uncertainties prevail and fearful investors shy away from financial assets.

Regarding stock markets yet to give positive returns in the current fiscal, Lakshmi Iyer, Chief Investment Officer (Debt) and Head Products at Kotak Mutual Fund Company, said there has been a global trend of risk aversion, which has meant less money into risk asset class like equities and money flow into safe haven asset class like fixed income and gold.

As valuations improve and markets get more clarity on how the overall macro will pan out, one could see risk on sentiment re-emerge, albeit with a lag, she added.