Gold may be ruling at record high levels of over Rs 32,000 per 10 gram but investors putting their money in gold equity funds have not been fortunate enough to earn any profits.
Besides buying physical gold, Indian investors also take exposure to the precious metal through gold ETFs (Exchange Traded Funds) that tracks the metal’s prices, or through gold equity MFs that invest in the shares of gold companies.
While gold ETFs have gained up to 12.90 per cent in the last 12 months, the gold equity funds have performed badly, with losses of 6-9 per cent in the past one year.
With large-scale gold mining almost absent in India, gold equity MFs invest in firms listed abroad such as New Gold Inc, Goldcorp, Eldorado Gold, Randgold and Osisko Mining.
The investment philosophy of such funds is that profits and share prices of miners will rise with surging gold price, but that scenario has not played in the last 12 months.
“Gold equities, though closely correlated with bullion, are also impacted by the factors that affect equity markets,” DSP BlackRock Investment Managers’ Executive Vice President Pankaj Sharma said.
“So, periods in which overall equity markets are going through a bear phase, could see gold equities also under perform gold bullion. The period over last one year has been such a phase,” he said.
Also, when domestic gold prices have crossed Rs 32,000 mark from around Rs 28,000 per 10 grams just a year ago, international gold prices have actually fallen.
“Rupee depreciation has caused gold prices in India to rise significantly and hit record high but internationally, gold has not fared too well,” Morningstar India Senior Research Analyst Dhruva Raj Chatterji said.
“Over the past year, domestic gold prices have risen by about 15 per cent while global prices have actually declined by 9 per cent per cent over the same period,” he said.
Additionally, gold miners have trailed the performance of international gold price by a significant margin, and the returns of some of mining stocks are in the red.
Goldcorp shares are down 10 per cent, Eldorado Gold is down 24 per cent and Osisko Mining is down 27 per cent in past one year.
As per AIG Investments, gold miners could hit a plateau in terms of production due to insufficient amount of large gold discoveries and rationalising of assets in a bid to focus more on profits than growth.
It, however, added that a flat or falling gold supply would be bullish for price.