Higher interest rates take sheen off gold ETFs

New Delhi: The quantum of inflow into gold exchange-traded funds dropped to Rs175 crore in September after hitting a 17-month high in the preceding month, owing to profit booking. Apart from the inflows, the asset base of Gold Exchange-Traded Funds (ETFs) also decreased in the period under review, as per the data from the Association of Mutual Funds in India (Amfi).

“With a continued hike in interest rates in the US, inflation still higher than expectations, and the growth rate slowing down, the appeal of gold as a safe haven and hedge against inflation is expected to continue,” said Melvyn Santarita, analyst and manager of research at Morningstar Investment Adviser India.

According to the data, gold-linked ETFs saw an inflow of Rs175.3 crore last month as compared to Rs1,028 crore in August. The inflow stood at Rs456 crore in July. Prior to that, Gold ETFs saw an inflow to the tune of Rs298 crore during the April-June period after three quarters of consecutive outflow. The category saw a withdrawal of Rs1,243 crore in the March quarter, Rs320 crore in the December quarter, and Rs165 crore in the September quarter.

In August this year, Gold ETFs recorded the highest monthly inflow into Gold ETFs since April 2022, when the category attracted Rs1,100 crore amid the Russia-Ukraine war.

“Gold prices in recent times have come off from their all-time high levels, thereby providing some buying opportunity, particularly after the sharp rally they witnessed since March this year,” Santarita said.

Gold, with its superlative performance over the last few years, has attracted significant investor interest, and the consistent surge in its folio numbers is a testimony to the same. Investor accounts in gold ETFs climbed by nearly 11,000 folios to 48.06 lakh in September from 47.95 lakh in the preceding month. This shows that investors have become more inclined toward gold-related funds. However, the assets under management of Gold ETFs declined to around Rs 23,800 crore in the month under review from Rs 24,318 crore in August. Gold ETFs, which track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold, which may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. They combine the flexibility of stock investments and the simplicity of gold investments.