NEW DELHI (Commodity Online): Even though the equity market is showing signs of a major recovery from the recession blues, gold exchange traded funds (ETFs) have not lost its sheen a bit till now.
According to reports appearing in media, gold ETFs are still a rage among investors. A report said holdings of three gold ETFs have begun picking up since March, when the global equities rally got under way. This means despite the rally in equity market, investors are hedging themselves by putting a part of their money into gold.
Holding of the largest ETF, benchmark gold ETF, has gone up by 389 kg to 2.3 tonnes between March and August this year, after declining by 262 kg between August ’08 and March ’09. A similar trend is visible in the case of Kotak Gold ETF, another sizeable player in the industry, whose holding rose from 341 kg in March to 362 kg by August-end. Quantum Gold Fund saw holding rise from 52 kg to 67 kg over the same period.
According to market experts, the increase suggests greater asset allocation, particularly over the past three months, towards gold by retail and high networth investors, who are likely to have hedged their exposure in equities by buying into gold. According to Economic Times, this was more evident since June onwards when the Sensex rose from 14,840 and breached 15,000 levels, prompting awareness among investors that valuations could have become stretched.
ETFs offer equity investors a platform that is preferable to holding physical gold, which comes with associated security risks and high investment charges, or buying gold futures which are highly leveraged instruments exposing them to high reward-high risk. Clients who picked up units in early August when gold was at $971.25 an ounce (31.13 gm) stood to have benefited from the recent rally towards $1,007. They could have offloaded part of their units at Tuesday’s high (around $1,007).
After a tepid performance in August, when average daily volume of the biggest gold ETF — GoldBees — was 9,184 units, trading picked up since the start of September, when the scheme witnessed average daily volume of 21,269 units. Low volumes between May and August though are in line with the slack demand for gold this period. But a steady rise in gold held by fund houses show that savvy investors had already accumulated gold at lower levels.
Investors into gold ETFs buy units that track the price of gram gold and backed by actual gold. They can choose between any of the six ETFs that are traded on the NSE and launched by mutual funds such as Benchmark, Kotak, Reliance, Quantum, SBI and UTI.
