COIMBATORE: After bringing good returns for investors late last year, gold exchange traded funds (ETFs) and gold funds are making a slow retreat. With prices of the yellow metal softening, returns from gold ETFs and funds have declined in the last two months. While gold ETFs have declined by 2.2% to 2.4%, gold funds that invest in stocks of gold mining companies have fallen by 3% to 7.8%.
"Gold is in a consolidation phase now. Trends are favouring the dollar on a short-term basis and so there is some sluggishness in gold," says Lakshmi Iyer, head, fixed income and products, Kotak Mahindra Mutual Fund (MF). After hitting a record high of $1,226.1 an ounce in December, gold prices have come down to around $1,100 now.
Even though gold has had a good run recently, economic recovery has started picking up and this means the yellow metal can give only little more than "inflation plus" returns, says A Balasubramanian, CEO, Birla Sun Life MF. While a large number of diversified equity MFs and broader market indices have given more than 100% returns since March -the beginning of the current rally - gold ETFs have given only 6.7%-7% returns during the period. Gold funds have fared better delivering 24% to 48% returns.
Though gold has lost some of its lustre, the macro-economic conditions and inflation concerns still make the yellow metal a good antidote for risk, say industry officials and observers. With high inflation looming large, they believe that gold, despite the recent slip, would be a good investment bet.
"Given the current concerns on inflation and the markets' rapid rise in 2009, retail interest in gold ETFs will remain high," according to Anupam Gupta of HDFC Securities. "The (gold) rally was too fast but we do not see any major sell-off in gold. The correction is a good opportunity to make investments," says Kotak's Iyer.
The yellow metal has good support at $1,050-$1,070 levels as incremental demand would start coming in, she says. Gold ETFs would also benefit from increasing demand for gold as an investment option given its resilience against inflation, say observers.
Irrespective of the economic conditions, investors should park at least 10% of their corpus in gold and gold-related instruments, say fund managers. The assets under management of the six gold ETFs doubled to Rs 1,300 crore in 2009 on the back of a 25% jump in the prices of the yellow metal.
