Gold ETFs lose some sheen in September, shows AMFI

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Gold ETFs saw lacklustre performance in September 2023, garnering only Rs 175.29 crore during the month. This comes on the back of stellar fund inflows these ETFs saw in July and August, 2023. While July saw gold ETFs rake in Rs 456.15 crores, the inflows in this category in August swelled to Rs 1,028.06 crores, before falling to their present levels. Notably, between April-June 2023, gold ETFS saw inflows worth Rs 297.98 crores. 

According to Melvyn Santarita, Analyst,  Morningstar Investment Adviser India, “The net flows witnessed by Gold ETFs in August 2023 was the highest in over 17 months. With continued hike in interest rates in the US, inflation still higher than expectations, and growth rate slowing down, the appeal of Gold as a safe haven and hedge against inflationary pressures is expected to continue”. 

However, gold’s appeal as a safe haven has seen certain slack, given that things are looking better for the dollar, with the 10-year US treasury bond yield rates touching 4.98%, and strong indications of further hikes. Given that both the dollar and gold are safe avenues of investment, they are inversely related. 

Ahead of the festive season, the market is also seeing a rising demand for gold loans. As per RBI data, outstanding gold loans in the country stood at Rs 95,476 crores at the end of July, marking a 23.1% Y-O-Y rise. This rose marginally to 96,264 crores as of 25th August, 2023. According to RBI directives, you can raise a maximum of 75% of the pledged gold’s value as the loan amount. This lets people make a dash for quick bucks, without having to sell off their precious yellow metal. Unsurprisingly, India is home to 14% of the world’s total gold. 

Rohit Shah, founder of Getting You Rich Advisory notes, “Gold is a very good hedge. In the absence of an effective real estate investment availability (in financial asset format), it is even more important to consider Gold for non-correlated performance at the overall portfolio level. We feel it’s good to have an exposure of ~5% to 10% to Gold in every investor’s portfolio”.