The gross inflow into gold exchange traded funds (ETFs) fell to a new low of ₹96 lakh in July, with this category of passive fund registering a net outflow for the first time in last five months. Gross inflows in June were at ₹252 crore.

Investors had pulled out ₹457.71 crore from gold ETFs last month leading to net outflow of ₹456.75 crore even as the precious metal received support from rising concerns on global economy slipping into a recession stoked by sharp increase in interest rate by the US Fed to tame soaring inflation.

In June, gold ETFs registered a net inflow of ₹135 crore as gross inflows (sales) were at ₹252 crore and outflow was at ₹117 crore.

The last time when gold ETFs registered a net outflow (of ₹248 core) was in February as the gross sales were at ₹244 crore and outflow was ₹493 crore, according to data sourced from AMFI.

In all, there are 11 gold ETFs traded on stock exchanges and market regulator SEBI had recently taken measures to improve liquidity in these listed securities.

In May, SEBI decided that direct dealing with AMCs for trading in ETFs will be allowed for transactions worth over ₹25 crore from July. Those below this threshold have to be mandatorily executed on the stock exchange platform.

However, on representation from stakeholders the regulator postponed the implementation to November.

“Feedback was received from stakeholders expressing certain challenges with respect to implementation of the above clause. Considering the same, it has been decided its applicability will be from November 1,” SEBI said.

Gold prices under pressure

The yellow metal has fallen 1.4 per cent so far this year and closed at $1,774 an ounce on Comex in the US. It was down 3.5 per cent last year, while it gave stupendous positive return of 25 per cent and 19 per cent in 2020 and 2019, respectively.

Kavitha Krishnan, Senior Analyst, Morningstar India, said the significant outflow from gold ETFs was on investors’ expectations that the rising interest rate cycle will lead to a fall in gold prices.

Depreciation of rupee against dollar is another factor that had impacted the demand and supply dynamics of gold, she said.

Chirag Mehta, CIO, Quantum AMC, said going forward the US Federal Reserve will hike interest rates less aggressively and try to support growth, given the inflationary pressures are starting to subside and this bodes well for gold prices.

However, there are still downside risks with the possibility of the Ukraine war pushing up oil and gas prices, especially during the winter and could result in higher inflation putting the US Fed in a fix, he said.