Market participants maintained that expectations of further stimulus, an ultra-low interest rate environment and geopolitical tensions were other factors driving investors to seek some stability for their savings through the yellow metal.
Gold prices have risen 41.6% since January amid increasing economic uncertainty due to the novel coronavirus attack and the resultant economic fallout. The sharp rise in gold prices has prompted many investors to increase allocation to the gold exchange traded funds (ETFs). In July, gold ETFs saw net inflows of Rs 921.19 crore compared to Rs 494.23 crore in June, registering around 86% growth.
The Association of Mutual Funds in India (AMFI) data revealed that gold ETFs had seen net inflows since April. In the first seven months of the current calendar year, gold ETFs had seen net inflows of Rs 4,451.9 crore. Only in March, gold ETFs had seen net outflows of Rs 194.95 crore, while all other months saw inflows, showed the Amfi data.
N S Venkatesh, chief executive at Amfi, said in uncertain times gold becomes the safe haven and so investors are putting their money in it. “Even the prices of gold are going up and investors think it’s the right time to get it locked in safe haven that is why they have invested in gold ETFs,” added Venkatesh. Gold prices have risen 37.2% between January and July.
Bloomberg data showed that on Monday gold prices closed at Rs 55,331 per 10 gm. Market participants maintained that expectations of further stimulus, an ultra-low interest rate environment and geopolitical tensions were other factors driving investors to seek some stability for their savings through the yellow metal.
Chirag Mehta, senior fund manager (Alternative Investments) at Quantum Mutual Fund, said the re-emergence and upturn in Covid-19 infections in many parts of the world could trigger re-imposition of lockdowns and containment measures. The more delayed the complete reversal of the great lockdown, the slower the economic recovery.
“Against this background, it is hard to imagine a scenario where central banks around the world will change their accommodative stance any time soon. With all the above forces at play, gold is proving to be an attractive portfolio diversifier and an important asset in these uncertain times,” added Mehta.
Financial advisors are also of the opinion that gold is an important part of the portfolio, but several investors only invest looking at the past returns. “I fear that once the gold prices start going down, investors will pull out and end with either losses or very minimal gains. I suggest my investors to have investments of 5-10% of gold in their portfolio, irrespective of the prices. It is because gold is not directly corelated to equity and debt and it is a different asset class,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories.