Amid liquidation of gold Exchange Traded Funds (ETF) in the global markets due to the ongoing fall in gold prices, fund houses today said redemption pressure will certainly rise if the price fall continues.

They, however, argued that it would not be the end of the road for gold as an asset class and that the yellow metal is crucial for asset diverisification purpose, apart from the fact that nothing fundamentally has changed better for the global economy.

“Gold ETFs have seen redemption pressure in the last fiscal in comparison to the 2007-2011 period. With a steep fall in gold prices, this pressure may continue. However, there is less possibility of huge redemption as gold as an asset class remains important for portfolio diversification,” M F Himanshu Pandya, Senior Vice President and Head - Products and Communication, ICICI Prudential said today.

Gold prices hit a near 15-month low today in the country following reports of Cyprus being forced to sell its gold holding reserves. Other troubled EU nations like Italy, which has the fourth largest gold reserve holding, was also being forced to sell gold to bring its finances back to sails.

Gold prices have fallen to Rs 26,850 per 10 grams today from a high of over Rs 33,000 crore per 10 gram mid last year.

He also said investors should not expect super-normal profits from the gold ETF space as there is renewed faith in the dollar due to the recovery of the US economy.

On the possible rise in redemption pressures in the gold ETF space, Debasish Mallick, Chief Executive, IDBI MF said, “if gold continues to fall, there is a likelihood that investors will exit.”

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