Gold, the hedge against economic uncertainty, continues to attract investor interest despite a sharp rally in its prices, and a bull-run in the stock market.
The assets under gold exchange-traded funds of mutual funds jumped 74 per cent to ₹10,102 crore last month, compared to ₹5,799 crore logged last August.
Except for last October and March, gold ETFs have been registering continuous inflows since the last 10 months. Net inflows touched ₹3,229 crore in the last 10 months, as the coronavirus pandemic continues to wreck havoc on economies around the world.
Himanshu Srivastava, Associate Director (Research), Morningstar India, said the safe haven appeal of gold has brightened with all major economies staring at recession, and the yellow metal emerging as one of the best-performing asset classes since 2019, gaining investor traction.
The intermittent surge in gold prices has also provided profit-booking opportunities for investors. However, since then, investors have made a comeback into the category with the highest inflow of ₹1,483 crore in February.
Considering the threat posed by the coronavirus pandemic to the global economy and the markets, this segment may continue to gain traction from investors, going ahead, he said.
Gold functions as a strategic asset in an investor’s portfolio during tough market conditions and economic downturns.
Gold ETFs have proven their ability to act as an effective diversifier to cut losses. Since 2011, gold had registered one of its best rallies so far this year, said Srivastava.
This year, gold prices have rallied 19 per cent in rupee terms even as crude oil crashed and intermittent news on successful testing of drugs for coronavirus seeped in.
Chirag Mehta, Senior Fund Manager (Alternative Investments), Quantum Mutual Fund, said politicians hoping to kick-start the economic engine back to life might be in for some disappointment when they discover that they can let businesses reopen but they cannot force people to shop, eat or visit places.
Predicting firm gold prices on the back of weak GDP growth, he said, as health experts have warned of a surge in coronavirus cases after the lockdown is lifted, the global economy could get trapped in a vicious cycle of outbreaks and shutdowns until a vaccine is eventually found.
This will continue to take a toll on the economy and increase the need for government support. And for as long as the economy is in that transition, safe havens like gold will be in demand as investors decide on their future investment avenues, he said.
Monthly flows (₹ crore)
Aug-19 145.29
Sep-19 44.11
Oct-19 -31.45
Nov-19 7.68
Dec-19 26.85
Jan-20 202.14
Feb-20 1483.33
Mar-20 -194.95
Apr-20 730.93
May-20 815.03