Gold ETFs see first outflows in eight months, Rs 61.5 cr pulled out in July

Investors to shift money to other asset classes as prices of the yellow metal weaken

Investors have pulled out money from gold exchange traded funds (ETFs) after the gap of eight months amid renewed optimism over the economic recovery and improvement in vaccination rate. Fall of gold prices in the last few months have also fueled investors to look at other asset classes such as debt and equity funds.

Data from Association of Mutual Funds in India (Amfi) shows that Gold ETFs saw net outflows of Rs 61.5 crore in July. Last time gold ETFs had seen net outflows was in November 2020.

In the period between December and June, investors pumped in Rs 3,537 crore in gold ETFs to diversify their holdings amid a red-hot equities market.

Chirag Mehta, Senior Fund Manager-Alternative Investments at Quantum Mutual Fund says, progress on the vaccination front and improving macroeconomic situation has favored risk assets and left gold sidelined despite favorable fundamentals.

“Talks of monetary tightening by the Federal Reserve in June knocked gold even lower to mid-$1,700 levels. The sell-off was unwarranted as interest rates in the US are set to stay at near-zero levels till the end of 2022 and any stimulus tapering would depend on how the economy behaves,” says Mehta.

The data from IBJA shows that the gold price was Rs 46,035 (per 10 gram) on Tuesday. Gold is down by 3.3 per cent in the last three months and 16.7 per cent in the last one year.

Typically, gold is considered as a hedge against economic uncertainty and investors have moved the money towards gold in the last few months due to the fear of Covid-19. But now investors have been preferring other asset classes as gold funds have on an average given returns of 17.51 per cent in the last one year. The returns are one of the worst-performing categories in the mutual fund space in the last one year.

“Investor seems to have lost interest in gold ETFs, to gold prices have been on an all-time-high for a while, creating anticipation amongst investor for a price plunge and due to attractive returns fetched by equity and debt funds, investors tend to divert their investments into these instruments,” said Priti Rathi Gupta, Founder, LXME.

While gold ETFs saw outflows in July, other categories like debt and equity funds witnessed net inflows. The data from Amfi shows that, equity funds saw net inflows of Rs 22,584 crore while debt funds witnessed net inflows of Rs 73,694.04 crore last month.

Market participants say that while fundamentals remain constructive, conflicting macroeconomic developments will keep gold prices range-bound in the near term.

“Investors should avoid going overboard and gradually build and maintain a 10-15 per cent exposure to the strategic asset class,” added Mehta.