As Yellow Metal Prices Fall Gold ETF AUM Is On The Rise

Investors are taking advantage of the sharp fall in Gold prices that has seen a correction from its August 2020 peak. Gold price in India peaked at around Rs 56,000 in the first week of August 2020. It saw a steady fall since then as Covid induced uncertainty began to recede as the news of vaccine started gaining traction from September onwards. The MCX Gold price was quoted around Rs 45,000 per 10 grams on Monday. 

Investors have once again begun to invest in gold at lower levels. This has resulted in consistent inflows month after month in Gold Exchange Traded Funds (ETFs). 

After recording a net outflow of Rs 141.09 crores in November 2020, the category since then has received consistent net inflows. While in December and January, it received a net inflow of Rs 431 crores and Rs 624.87 crores respectively, in February, it received a net inflow of Rs 491.39 crores. The trend is expected to gather momentum in the coming months.

The emergence of the second wave of Covid-19 in India and the third wave in some of the European countries including Germany, where strict lockdown imposed has been extended till April 18 may once again see gold demand spurting. 

Analysts are of the opinion that another reason for the potential rise in gold prices is that gold prices have fallen by more than 20 per cent in the last more than seven months after hitting a peak. US greenback. Also, the announcement of a cut in import duty on gold has also played its role in falling gold prices. 

Ahammed MP, Chairman Malabar Gold and Diamonds, said, “Those investors are taking an active interest in investing in gold ETFs because gold has turned out to be among those few asset classes with the proven ability to reduce risks and increase return amid challenging investment scenarios. Investors who are keen to de-risk their investment portfolio from future economic volatility are going for ETFs.

Investors have adopted the buy at dip strategy. The current levels are offering attractive entry points and also the current investment environment to invest in gold is also conducive, they explained.

Himanshu Srivastava, Associate Director – Manager Research, Morningstar India said, “Gold ETF category continues to be under investors radar. Now with gold prices coming-off its all-time highs touched in August last year has provided a good buying opportunity to investors, which resulted in net inflow for the category in February”.

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. This is where it draws its safe-haven appeal. This was the precise reason why the Gold prices shot up post covid-19 was declared a global pandemic by the United Nations Organisation (UNO) in March 2020.

During the challenging investment environment over the last few years, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors’ portfolios. Expectedly, this has attracted investors’ interest. 

Those who want to diversify their investment and want to stay away from the hassles of investing in physical gold are preferring Gold ETFs and that’s the reason we are seeing Gold ETF’s assets under management (AUM) rising, they opined.