The volumes in exchange-listed gold funds have surged over the last two days, with prices of gold shooting up. This is following trends in the global market where the downgrade of US debt has triggered a sell-off in equity markets and fired up gold prices.

The total traded quantity in GoldBeES (most heavily traded of the gold-ETFs), the Benchmark Mutual Fund's gold exchange traded fund shot up from an average of 1-1.5 lakh units in a day to 3 lakh units on Monday and 3.77 lakh units on Tuesday in the National Stock Exchange.

Gold holdings increase

But, the question now is – is it only a speculative interest that is driving volumes or are these gold mutual funds seeing some new units that are being created too?

From the report put out by the Association of Mutual Funds of India, we find that the net inflows into gold ETF schemes in the four months from April is Rs 1,176 crore; this a little more than 40 per cent of total inflows into gold ETFs in 2010-11. These numbers make it clear that investors have been bullish on the yellow metal and continued to place bets on it even as its price rallied to new highs in the market. Higher inflows into gold ETF schemes can also be seen as the result of the bunch of the NFOs that debuted in the last one year. From just 7 gold ETF schemes in June last year, we have a total of 12 schemes now. Birla Sun Life Mutual Fund closed its NFO in gold ETF in June by mopping up Rs 51 crore.

Portfolio rejig?

India's gold ETF demand though a fraction of the country's total gold consumption is growing at a fast pace. GoldBeES, the largest exchange traded fund for gold in the country, has almost doubled its gold holding over the last one year – its current holding is around 9.57 tonnes.

Even as equity investors are fretting over their choice of investment, gold investors are rejoicing. From around Rs 2,058/gm in end-December last year gold's price has shot up to Rs 2,443/gm now; a return of 24 per cent in seven months! The Indian equity benchmark –Sensex has dropped by close to 18 per cent in this period.

With corporate earnings nailed by rising interest rate and high inflation, investors are preferring safer avenues such as gold. Looking at the mutual fund industry numbers, we find that the equity funds have seen a net outflow of Rs 239 crore between April and July this year even as gold ETF managed good inflows. While large investors make lump-sum investments, many small retail investors have started systematic monthly investments in gold said a wealth manager of a leading bank.

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