India gold ETF holding may surge 17 times

Written by Bloomberg | Updated: Sep 1 2010, 04:36am hrs
Gold held by exchange-traded funds in India, the worlds biggest buyer of bullion, may surge as much as 17 times in the next three years as investors seek a refuge from financial turmoil and inflation.

Assets may reach 100 tonne to 200 tonne from 12 tonne now, said Rajan Mehta, executive director of Benchmark Asset Management Co., which runs the nations first and biggest gold exchange-traded fund. The growth will definitely be faster than what we have seen in the past.

Investors globally bought 291.3 tonne of gold in ETFs in the second quarter, the second-highest amount on record, as prices climbed to an all-time high of $1,265.30 an ounce during the sovereign-debt crisis in Europe, the producer-funded World Gold Council said on August 25. London-based researcher GFMS Ltd. and Goldman Sachs Group Inc. expect gold to advance to $1,300 this year as the metal heads for a 10th straight annual gain.

Indias seven bullion-backed funds had Rs 19.7 billion ($420 million) in assets on July 30, more than double the amount a year earlier, according to the Association of Mutual Funds in India. Increased inflows may help support prices.

Investment demand for the yellow metal in India more than tripled to 92.5 tonne in the six months ended June 30 from 25.4 tonne, the World Gold Council said.

Exchange-traded funds have become popular worldwide since their creation in 1993 as they widened investors access to different type of assets. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, expanded to a record 1,320.44 tonne in June, and were at 1,298.56 tonne as of August 27, according to the companys website.

Today the industry has only 12 tonne, which is very small compared with volumes all over India, Mehta said in an interview in Goa. There is a lot of room to grow. he added.