Indian gold investors cashed out in 2015

Rajalakshmi Nirmal | Updated on March 10, 2018



ETF holdings have dropped to their lowest in three years

The year 2015 was a washout year for commodities, but precious metals weathered it with less damage. Gold prices dropped by about 9 per cent in the international market. In the domestic market, investors who bet on gold suffered a loss of 7 per cent.

This being the third straight year of losses on gold investments, many investors cashed out. The total holding of all gold-backed exchange traded funds in India dropped to 25 tonnes — a three-year low. Goldman Sachs gold ETF, the largest gold-backed exchange traded fund in India, holds about 678 kg of gold, a decline of about 12 per cent from last year.

Outflows in gold ETFs that began in 2013 have mostly continued. After a net outflow of ₹1,475 crore in 2014-15, the outflow (net) from these funds was ₹529 crore between April and November 2015. Assets under management for the Gold ETFs stood at ₹5,830 crore by end November.

According to AMFI data, retail investors have been putting more money into equity and debt mutual funds this year. Given the amount of negativity that prevailed on commodity prospects, it is understandable why investors didn’t show much enthusiasm for gold.

The rupee didn’t help

Even if gold didn’t do well, ETF investors in India could still have had a good year, had there been a cross-currency benefit. Since gold is priced in US dollars, investors make good returns on it if the rupee depreciates against the dollar. In 2013 for instance, when the gold prices crashed about 30 per cent to $1201/ounce, in India, investors didn’t see any damage to their bullion portfolio. That was thanks to the rupee’s 12 per cent depreciation against the US dollar. But there was no such breather this year. With an improving current account position and reasonable growth prospects, the Indian currency weathered the storm. Though currencies such as the Malaysian ringgit, Russian rouble and South African rand lost about a fifth of their value vis-à-vis the US dollar, the Indian currency lost just about 5 per cent. A gold investor in Malaysia or even South Africa could have made a fortune in gold this year.

Cues for this week

With investors already in the midst of New Year revelries, there may not be much action in the bullion market this week. In the US, the consumer confidence number that will be released on Tuesday and the jobless claims number of Thursday are the only two important releases for the week. Gold is likely to close the year around $1,075-1,080/ounce. Last week it ended at $1,076/ounce, up 0.9 per cent.

MCX Gold futures contract may see only a range-bound movement this week. On the upside, the resistance is at ₹25,500 and ₹25,800. Supports are at ₹25,000 and ₹24,700.

Published on December 27, 2015

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