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Caution seems to be the watch-word for Indian investors going by the recent decline in gold prices. Though they see the fall as an opportunity to increase their exposure to gold exchange-traded funds, they seem to be biding their time to buy. At the same time, investors are not indulging in panic sales yet.
On Thursday, gold (99.9% purity) was quoted at Rs 26,350 per 10 grams in Mumbai, down 11 per cent since end-March.
SEBI data
But data disseminated by the market regulator SEBI show that the number of investment portfolios with gold ETF holdings rose 2.5 per cent to 5.8 lakh in April 2013 over the previous month. This was despite a 7.8 per cent decline in domestic prices of the yellow metal in April and a 7.6 per cent fall in international prices, prompted by fear that central banks of beleaguered nations facing a balance of payment crisis could be forced to offload their gold holdings.
It is an indication of investors in the country adopting a ‘wait and watch’ attitude.
Redemptions from gold exchange-traded funds in April were limited to just Rs 178 crore, compared with redemptions worth Rs 1,353 crore in March. However, investment in funds was only Rs 142 crore in April against Rs 2,767 crore in March.
Small outflows in April after the price correction signals that the precious metal is still looked at as a store of value in the country and that most investors are not willing to let the fall disrupt their investment strategy. Assets under management of gold ETFs also registered only a small dip. SEBI data show that the net asset value of gold ETFs declined by 8.7 per cent to Rs 10,629 crore in April from Rs 11,647.6 crore in the previous month. Since a chunk of this decline can be explained by the decline in gold prices, Indian ETFs appear to have come out unscathed in the bout of turbulence in April. The same can not be said of global exchange-traded funds. Investors’ perception of gold as an investment avenue has been severely dented overseas with news of investment funds such as Soros Fund Management LLC and Bacon’s Moore Capital Management slashing their gold ETF holdings. Fund managers such as Goldman Sachs, Deutsche Bank and so on, lowering their targets for gold has also had an adverse affect on the yellow metal’s prices.
Global scenario
SPDR Gold Shares, one of the largest gold exchange traded funds in the world, offloaded 14.3 per cent of its gold holdings weighing around 170 tonnes, between March 30 and May 15.
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