Inflow In Gold ETFs Drop 35% To Rs 384 Cr In Oct

New Delhi, Nov 10: Gold exchange-traded funds (ETFs) witnessed an inflow of Rs 384 crore in October, a drop of 35 per cent from the preceding month, as investors are opting to invest money directly into equities.

This also marked uninterrupted inflow for the seventh consecutive month, although the pace of investment into gold ETFs have been trending downwards since July.

Such instruments saw an inflow of Rs 922 crore in July, Rs 908 crore in August, Rs 597 crore in September and Rs 384 crore in October, data with the Association of Mutual Funds in India (Amfi) showed.

With the latest inflow, net infusion in a gold exchange-traded fund or ETF category has reached to Rs 6,341 crore in the first eight months (January-October) of the year.

"Though the net inflows continue to remain positive, the pace has decreased considerably. This trend can be correlated with the trends in equities. Increasing economic activity, buoyant equity markets, uncertainty ending with US presidential elections, hopes of a coronavirus vaccine are pushing investors to opt for riskier investments, through direct equities," said Gopal Kavalireddi, head of research at FYERS.

Gold, considered a safe haven and a hedge against other riskier asset classes, has taken a back seat at the current time.

"After an excellent year in 2019 and in the first half of 2020, capital flows have shifted into equities," he added.

Harshad Chetanwala of MyWealthGrowth.com said the continuous surge in gold prices came to a halt in the first week of August. From there on, gold prices started receding and later remained range-bound for a couple of months.

"In the last six months, August had seen the highest inflows in gold ETF as a drop in the gold price was looked upon as an opportunity by investors because they anticipated gold prices to increase in future," he said.

However, in subsequent months the prices have remained between Rs 50,000 and Rs 52,000. This has impacted the inflows as investors have witnessed surge, drop and volatility in gold, which is very much like how gold prices have behaved in the past, he added.

Gold has the tendency to do well during the crisis and then remain flattish for quite some time.

The inflows meant assets under management (AUM) of gold ETFs climbed to Rs 13,862 crore at the end of October, from Rs 13,622 crore at September-end.

Irrespective of the current situation, Kavalireddi suggested that gold should form a part of every investor's portfolio with an allocation of 10-15 per cent.

Considering the threat posed by the coronavirus pandemic to the global economy and the markets, Himanshu Srivastava, Associate Director – Manager Research of Morningstar India said  the segment may continue to gain traction from investors.

Gold functions as a strategic asset in an investor's portfolio, given its ability to act as an effective diversifier and alleviate losses during tough market conditions and economic downturns, he added.