Gold ETFs hit hard at Rs 30k investors book profits

Asset category sees an all-time-high monthly net outflow as Rupee dips to all time lows in June

After equity schemes, it seems gold exchange-traded-funds (ETFs) are now on investors’ radar for redemption.

In June, Gold ETFs witnessed an all-time-high monthly net outflow at Rs 227 crore. Thanks to the depreciating rupee, this catapulted gold prices to above Rs 30,000, despite the fact that prices of yellow metal prices have softened globally.

“I believe investors booked profits as the currency depreciation led to higher gold prices,” says Deepak Chatterjee, chief executive officer of SBI Mutual Fund.

Dollar-denominated gold imports to India escalate prices locally as rupee saw sharp weakness touching levels of as low as 57 against dollar.

Prior to the month of June, one of the highest outflows from gold ETFs at 41 crore in May had made industry analysts skeptical about the performance of gold as an asset class.  And now with close to six times of the previous net outflows, fund managers say opportunistic selling has hit gold ETFs.

There are several gold fund of funds (FoFs) which have cut their exposure to gold by as high as 15 per cent over the last one month.

Akshay Gupta, chief executive officer, Peerless Mutual Fund, says, “It was to happen. No one had seen gold prices above Rs 30,000, so investors, large opportunistic investors in particular, booked profits.

Amid skepticism that global gold prices may dip down to $ 1200 an ounce from the current level of around $ 1600 an ounce has further made Indian investors vary of investing in gold funds.

According to Gupta, in general there is a feeling that rupee may not depreciate further and will stabilize now. So, it made sense for investors to move out, he adds. Moreover, redemption pressure had started exerting its force when gold prices were hovering around Rs 28,000 per 10 grams. Industry executives say that had the rupee not depreciated, gold prices would have taken a U-turn to lower levels.

“But suddenly, currency depreciated by more than 10 per cent and investors held on at Rs 28,000 and made an opportunistic move when gold prices reached Rs 30,000,” notes Gupta.

According to Sunil Singhania, head of equity at Reliance Mutual Fund, “Gold should be used as a hedge. I would suggest investors not to put more than 5-10 per cent of their investment in gold.”

With a significant chunk of outflows from gold funds, the overall net outflows from this asset category in the first quarter (April-June) of FY12 has reached Rs 218 crore against a net inflow of Rs 942 crore during the previous corresponding period.

Amid gold funds saw net outflow during the month, equity funds too were hit as Rs 288 crore flowed out of the schemes.

Though income, balanced and other exchange-traded-funds managed to garner some fresh assets; heavy outflow from liquid and money market schemes at Rs 26,128 crore brought the overall flows in the negative territory. Outflows seen in liquid and money market category was owing to the quarter ending phenomena during which banks and corporate tend to redeem to meet their advance tax payments and other financial requirements.