Mutual Funds

Limited glitter for gold funds

Yoganand D | Updated on November 20, 2017

Gold has lost some sheen. — K.K. Mustafah

IW03_gold.eps

Gold started to lose its glitter after peaking out at $1,920 per ounce in September 2011. It has declined more than 17 per cent from its all-time high recorded at $1,920. In the last one year, gold prices have fallen 11.5 per cent.

Gold started losing its safe haven status as the global economic outlook began improving early last year. Investors shifted focus to shares and high-yield bonds, looking for higher returns. The US dollar index, which measures the performance of the US dollar against a basket of six currencies, has gained 4.6 per cent in the last one year and is trading around 82, hampering the performance of the safe haven. But with the global economic outlook once again looking uncertain, the yellow metal may be back in favour in the near future.

In rupee terms, gold prices continued to rise until September 2012 due to strengthening dollar against rupee. In September 2012, 1 gram of gold was hovering above Rs 3,100, registering a new peak. Since then, gold has declined 10 per cent and is currently at Rs 2,800.

There are eight gold ‘fund of funds’ which have a track record of more than one year. All ‘fund of funds’ invest in gold ETFs. These schemes also hold a small amount of cash, to meet redemption requests and hence would have lower returns compared with ETFs.

These eight funds have given an average one year return of 1.7 per cent. Religare Gold has posted the highest return of 2.4 per cent in the last one year, while Reliance Gold Savings generated 1.1 per cent. The domestic price of gold is the benchmark for these gold ‘fund of funds.’

In the past six months, gold funds have recorded an average decline of 4.7 per cent. Birla Sun Life Gold was a heavy underperformer among the funds, falling 5.8 per cent. ICICI Pru Regular Gold Savings was a better performer, declining by 3.9 per cent, but outperformed the benchmark, which fell 4.7 per cent.

Gold ETFs (Exchange Traded Fund) have delivered extraordinary returns of 19.7 per cent over a three-year time frame. However, in the past one year, they have delivered an average return of 3.3 per cent. When compared with global gold prices which fell 11.5 per cent, domestic gold ETFs and gold fund of funds have done well on the back of a weak rupee.

Technically, gold is hovering at around $1,580 per ounce, just above its key long-term support band between $1,535 and $1,550. A strong fall below this band will pave the way for a move downwards to $1,485 levels.

Significant long-term support below $1485 is positioned in the range of $1,400 and $1,420. Conversely, an important hurdle for gold is at around $1,620 and then at $1,680 levels.

Gold needs to make a strong move above its significant long-term resistance level at $1,800 to get back bullish momentum and trend northwards to $1,900 mark.





Published on March 02, 2013

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