AUM for gold ETFs up 30% in one year as investors rekindle interest

Domestic investors are rekindling their interest in gold exchange-traded funds (ETFs), amid a sharp rally in prices of the yellow metal. 

In January, gold ETFs offered by mutual funds (MFs) saw net inflows of Rs 202 crore, the most since December 2012. In the previous 12 months, the average flows into these investment vehicle was a paltry Rs 16 crore, shows data provided by Value Research. 

Further, the assets under management (AUM) of gold ETFs has soared to Rs 6,207 crore, the most since September 2016. In the past one year, assets have soared by over 30 per cent. This surge has been underpinned by an over 20 per cent plus in gold prices.Experts say many investors are opting for gold ETFs going by past returns.

“Investors always look at past returns for taking their position in gold or any other asset class. Gold has yielded 22 per cent and 33 per cent returns in the last one year and two years, respectively,” said Kishore Narne, associate director at Motilal Oswal Financial Services.

Hopes of further gains in the price of the previous metal could sustain inflows into gold ETFs. “With the dwindling global economy awaiting monetary easing, gold prices may rise at least 10 per cent from their current level over a six-month period. In a falling interest rate regime, investors find safe havens better than risky assets,” says Narne.

Industry players say some investors are taking money of equity and debt products and reinvesting them into gold.

“The coronavirus outbreak has triggered some rotation into safe-haven assets. As the virus uncertainty remains high, investors’ demand for gold remains unabatedly strong, with ETF holdings reaching fresh all-time highs of 83.4 million ounces,” said Jitendra Gohil, head (India equity research), Credit Suisse Wealth Management.

Tarun Birani, CEO of TBNG Capital Advisors, said volatility in both the debt and equity markets coupled, with the rise in gold prices, has helped in AUM growth.

Interestingly, the traction in the ETF market has risen despite demand for physical gold remaining soft. 

“Physical demand appears weak, considering a 48 per cent year-on-year decline in imports in January 2020,” adds Gohil.

Credit Suisse expects investors’ appetite for gold to stay intact “given the ongoing uncertainty and accommodative major central banks”.

It has 12-month forecasts of $1,600 per ounce. Prices are hovering around $1,587 per ounce.

The current AUM for gold ETFs is half the peak AUM of Rs 12,000 crore hit in 2013. Between 2013 and 2018, gold ETFs had lost nearly two-thirds of their asset.