Indian investors increased their holdings in gold exchange-traded funds (ETFs) as the yellow metal's price soared in the January-March quarter.
The behaviour of Indian as well as European investors was in contrast to those in the US and the UK. Gold ETFs in the US and the UK experienced net redemptions during the period, according to the World Gold Council.
“Redemptions were the highest in the US and London, but most other countries had positive net inflows,” it said in its Investment Digest.
In India, preliminary figures for gold ETF activity indicate a continued positive trend, the council said. Moreover, new gold mutual funds, which, it said, were easier to access by investors, were launched in the first quarter. “It is expected that these vehicles will further increase access to gold ETFs by the Indian population,” said the digest. According to SEBI, assets under gold ETFs increased 170 per cent during 2010-11 to Rs 4,400 crore.
The council said that SPDR gold shares, listed on the New York Stock Exchange, saw net outflows of 69.5 tonnes in the first quarter. This was because many investors chose to cash out when gold prices retracted. Of this, 56 tonnes were redeemed in January alone.
ETFs physical gold shares and GBS, both listed in London, saw net outflows of 7.6 and eight tonnes, respectively. On the other hand, iShares Gold Trust (IAU), listed on NYSE, Julius Baer Physical gold and UBS Index solutions-Gold ETF, listed in Switzerland, had the largest inflows of 7.6 tonnes, 6.5 tonnes and 4.8 tonnes of gold, respectively.
One explanation for increased interest could be that India faced a shortage of physical supply and increase in domestic market premiums in January. This followed a demand surge for the Chinese New Year. The council said physical investment demand for gold, in the form of bars and coins sold to be converted to jewellery, was also strong.
According to GFMS, investment demand made up 217.4 tonnes of the total gold demand of 963.1 tonnes in India last year. In 2009, it made up 136.1 tonnes of the total 578.5 tonnes. Gold prices increased 1.8 per cent quarter-on-quarter in rupee terms. The year-on-year gain for the yellow metal was 28 per cent.
The yellow metal's price surged to Rs 20,775 for 10 gm in Mumbai on March 31 this year from Rs 16,380 on April 1, 2010. On Saturday, it closed at a record Rs 22,815. Meanwhile, gold was the least volatile commodity in the global market in the first quarter, though its gain was modest compared with silver.