Gold ETFs see traction as stock market dips

Overleaf

New Delhi, Aug. 25: Assets managed by gold exchange traded funds (ETFs) rose to Rs 5,079.22 crore in the first four months of the current fiscal, a period which saw the stock market drop by 3 per cent, as investors turned to the yellow metal amid economic headwinds.

Data from Morningstar showed that assets under management (AUM) of gold ETFs have been rising since April this year.

In contrast, the 30-share Sensex has fallen 1191.79 points, or 3 per cent, during April-July. The BSE benchmark suffered a massive drop of nearly 5 per cent in July over June.

"For a long time, investors have stayed away from investing in gold ETFs/funds, as gold prices, after making a high around 2012, have retracted and remained rangebound since then. However, there has been a reversal in trend this year, with gold prices again moving up," Himanshu Srivastava, Senior Research Analyst and Manager Research, Morningstar Investment Adviser India, said.

While gold as an asset class acts as a hedge against inflation, it is also a safe haven in times of economic turmoil, he said, adding that as the global economy has been facing headwinds in the recent times, gold has once again found its safe haven appeal.

In April, gold ETFs’ AUM stood at Rs 4,594.06 crore and rose to Rs 4,606.69 crore in May. It further climbed to Rs 4,931.16 crore and Rs 5,079.22 crore in June and July, respectively, as per the data.

V. K. Sharma, Head-PCG & Capital Markets Strategy, HDFC Securities, said the US-China trade war, plunging bond yields and fears of recession have attracted safe haven buying in gold. Gold ETFs are passive investment instruments that are based on price movements and investments in physical gold.

In this financial year, gold has given spectacular returns to investors and has outperformed stock markets handsomely, he added.

He also noted that gold would continue to attract buyers as economic uncertainties prevail and fearful investors shy away from financial assets.

On the stock market failing to give positive returns in the current fiscal, Lakshmi Iyer, Chief Investment Officer (Debt) and Head-Products at Kotak Mutual Fund, said there has been a global trend of risk-aversion, which has meant less money into risk asset class like equities and more money flow into safe haven asset class like fixed income and gold.

— PTI