Gold ETF assets hit multi-year lows in February

Author: Paul Ploumis
10 Mar 2015 Last updated at 07:47:47 GMT

NEW DELHI (Scrap Monster): The assets in gold Exchange Traded Funds (ETF) has dropped sharply as on end-February this year. The assets touched their lowest levels since July 2011, posting a net outflow of Rs 205 crore during the initial two months of the New Year. The uncertainty in gold prices and the highly rewarding stock market are said to be the key factors that have contributed to investor’s apathy to gold.

Golf ETFs have been posting net outflows for several months in a row. During January, the gold ETFs reported net redemption to the tune of Rs 132 crores. Out of this, outflows accounted for Rs 131 crore. However, the outflows dropped to Rs 74 crores during February. The combined outflow from gold ETFs during the initial two month period of the year totaled 205 crores.

The assets under management have fallen drastically by almost 5% from Rs 7,188 crores as on end-Dec ’14 to Rs 6,844 crores by end-February this year. When compared with the peak level of Rs 12,000 crores during January 2013, the assets under management have plunged almost 42%.

The simple fact that gold assets have yielded negative returns to the investor during recent period has prevented incremental investments into gold. On the contrary, stock markets are going through bull run phase, posting double-digit gains on investments. The negative investor sentiment to gold is unlikely to see immediate recovery unless gold prices correct sharply or dream ride in equity market stalls. The gold ETFs are expected to face further redemption pressure.

The most recent data published by the Association of Mutual Funds in India (AMFI) suggests that INR 1,290 crores of money have been pulled out from gold ETFs during the ten-month period from April 2014 to January this year. Consequently, the total assets under management of gold funds have declined sharply by almost one-fifth.

The Indian mutual fund sector has 14 gold-backed schemes.