The Hindu Business Line : Gold ETFs outperform physical gold

Mumbai, Jan. 7 The four exchange traded gold mutual funds (gold ETF) have collectively outperformed the returns from holding physical gold in the week that saw gold hitting a record high in the bullion.

Gold ETFs collectively generated an average return of 3.4 per cent in the week ending January 4. In contrast, physical gold generated a return of three per cent having moved up from Rs 10,610 per 10 grams at the close of December 28 to Rs 10,950 on January 4as per the data released by the Bombay Bullion Association.

Safe bet

“India has had a history of being a gold savvy country, with almost 750 tonnes of gold being consumed last year. Now we can see that more people are turning towards ETFs as they seem to be a safer option as compared to physical gold,” said Mr P.R. Dilip, Managing Director of Impetus Wealth Management Ltd.

With the ETFs there is also no problem of storage unlike in the case of physical gold as its ownership is recorded electronically, he added.

Surprisingly, the traded volumes at the NSE of these units were lower last week compared to the immediate previous week. As against an average volume of 7,330 units for the week ending December 28, 2007, the volumes were slightly lower at 3,910 units during the week ending January 4.

No match to equity

But market players, however, caution against any similar comparison with returns from the equity markets although the gold ETFs have outperformed the benchmark indices such as Nifty and the Sensex. The magnitude of the rise in gold prices (3 per cent) last week was a rare phenomenon while returns of such order are quite frequent in the equity markets, said one analyst with a leading broking firm here.

The Sensex grew by 2.38 per cent, while the Nifty rose by 3.2 per cent. The growth in the mid-cap and small-cap indices at the BSE was, however, substantially higher at 5.62 per cent and 7.62 per cent, respectively.

Also, trading volumes in physical gold are thin on a daily basis as consumers tend to buy during festival seasons, they say. “People buy gold when it is the festive season like Diwali, you don’t see much buying taking place especially during these months of December and January. It is all a speculation driven by such factors as increasing crude oil prices and civil strife in Kenya and Pakistan,” said Mr Sanjay Someshwar, sub-broker with Ventura Securities.

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