Investors bet on gold to hedge against US results

The stable return generated by gold amidst a high bout of volatility in global financial markets and uncertainties around the outcome of the US presidential election have prompted cautious investors to seek the safety of the yellow metal.

The gold exchange traded funds (ETF) offered by domestic fund houses have witnessed a net inflow of `20 crore in October 2016 after experiencing redemption pressure for the last 30 months.

However, fund managers are not enthused by the latest set of numbers, as they believe that the sovereign gold bond scheme introduced by the government has managed to wean investors away from domestic gold ETFs.

According to them, gold ETFs globally had started raking in fresh money from both retail and institutional investors in the last few months following Brexit and growing concerns regarding China-led global growth slowdown.

However, domestic gold ETFs still witnessed redemption pressure during the same time.

“While global uncertainties still persist, the fresh inflows that we saw in October was largely on account of the festive buying. The sovereign gold bond scheme introduced by the government is offering an interest rate of around 2.75 per cent per annum on the amount of investment. This is over and above the return, an investor earns through capital appreciation. This has cannibalised domestic gold ETF’s where investors return is limited to the capital appreciation,” said Lakshmi Iyer, CIO – debt and head of products at Kotak Mahindra AMC.

THE DOMESTIC gold ETFs witnessed redemption pressure in the last few months

EXPERTS SAY that the October inflows in domestic gold ETFs was due to the festive buying in Dhanteras and Diwlai.