Brexit effect: gold funds regain lustre

| | Updated on: Jun 30, 2016
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Likely to continue stellar run as Fed is unlikely to hike interest rates in the short term

Thanks to Brexit and the uncertainty in global markets, the gold mutual fund schemes managed by most fund houses have regained their lost glory.

Some of the fund houses have managed to deliver returns of 25 per cent in the last six months, though the real rally in gold was triggered by the unexpected result of the UK referendum in favour of an exit from the European Union.

The net asset value of gold funds was dragging for long on expectations of further hike in US interest rates and consequent pick up in global economy. Signalling signs of revival in its economy, the US Fed increased its policy interest rate by 0.25 per cent last December with an assurance of further hikes in coming months.

However, with Britain deciding to exit the EU and odds of the US hiking the Fed rate having fallen, gold is expected to strengthen further.

Rajiv Shastri, MD & CEO, Peerless Mutual Fund, said investors in gold MFs should not react to the gain and fall in gold prices but continue to stay invested.

‘Risk mitigation tool’

“We suggest investors should have 20 per cent of their portfolio in gold as it is the best risk mitigation tool,” he said.

Globally, spot gold prices gained $60 an ounce since the Brexit poll results were announced.

The price of the yellow metal rallied to $1,316 on June 24 from $1,256.

In the last six months, gold prices have gained 24 per cent from its level of $1,061 an ounce.

In India, gold prices on the MCX gained 25 per cent to ₹31,200 for 10 grams from ₹24,913/10 grams recorded on January 1. Post-Brexit verdict to date, it has gained 4 per cent to ₹31,200.

Amit Gupta, Research Analyst, Kedia Commodity, said the results of the UK referendum has complicated things and its impact on the global economy is unpredictable.

In this scenario gold is expected to strengthen further, he added.

Published on January 20, 2018

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