Net outflows from gold ETFs hit 52-month high

Indian gold exchange traded funds (ETFs) are witnessing their highest net outflows in 52 months. With some recovery in the stock markets and gold prices surging to Rs 30,000 for 10g, investors have started booking profits partially, say fund managers.

According to data from the Association of Mutual Funds in India (Amfi), gold ETFs saw net outflows of Rs 41 crore in May. Though a small number in absolute terms, it gains importance as the category last saw such outflows in January 2008.

The asset category, which has emerged as one of the most attractive investment avenues over the past three years, has been already witnessing a slowdown in inflows since the second half of FY12.
 

RAPID SURGE
Gold prices (per 10g)

DateRs/10g Jun 13,201229,860 Dec 31,201127,190 Dec 31,201020,585 Dec 31,200916,690 Dec 31,200813,435 Source : BS Research Bureau

Says Dhirendra Kumar, chief executive officer of Delhi-based fund tracking firm Value Research, "Inflows into gold ETFs have been riding on momentum. Now, that momentum has decelerated."

Some fund managers say gold would be the first asset class to correct when the situation improves. Says Akshay Gupta, chief executive officer, Peerless Mutual Fund, “I do not see gold prices increasing much. They have risen one way for the last two years, which may not sustain.”

“We are cautious and have cut our asset allocation towards gold in some schemes by around 15 per cent,” he adds.

Gold prices have surged around 10 per cent so far this year. Between 2007 and today, the yellow metal has given a whopping return of over 180 per cent as it jumped from Rs 10,650 to Rs 29,860 for 10g.

Experts say that recent depreciation in the rupee helped gold surge. The increase in import duties to four per cent also pushed gold prices up in the Indian markets.

For the last several months, independent experts had been getting worried about the pace of inflows into gold ETFs, fearing the built-up of a bubble. For instance, between FY09 and FY12, net inflows in gold ETFs increased over 43 times, from Rs 84 crore to Rs 3,646 crore. All through these years, investors have been pumping money into assets such as income funds, real estate and gold.

Says Navneet Munot, chief investment officer, SBI Mutual Fund, “Gold should be used only for hedging purposes, against extreme inflation or deflation and in case of a major economic or financial market breakdown. It should form a small, not a major, part of investors' overall portfolio."

As on May 31, the mutual fund industry had 14 gold ETFs and assets under management worth Rs 10,312 crore, around two per cent of the industry's total assets.