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Informist, Saturday, Aug 10, 2024

 

By J. Navya Sruthi

 

MUMBAI – Net inflows into gold exchange-traded funds in July were the highest since June 2020, as per the data compiled by Informist. The cut in gold import duty by the Indian government in the Budget for 2024-25 (Apr-Mar) in July was the main reason for the increased flows into gold ETFs, fund managers said. They expect that the ongoing geopolitical tensions and the likely easing of monetary policy in the US will attract more inflows into both gold and silver ETFs going forward.

 

According to data released by the Association of Mutual Funds in India Friday, gold ETFs saw net inflows of 13.4 bln rupees in July, about 84% higher than 7.26 bln rupees the previous month. The redemption or repurchase for the month was 1.28 bln rupees, higher than 262.7 mln rupees in June. 

 

The value of assets under management of 17 ETFs in July was 344.55 bln rupees, against 343.55 bln rupees in June, the data showed. As of Jul 31, the number of folios was 5.5 mln, up from 5.4 mln as of Jun 30, AMFI data showed.

 

Despite the strong flows into gold ETFs, the AUM of gold ETFs rose only marginally because of a big fall in gold prices after the government reduced the customs duty from 15% to 6% in the Budget, said Venkat Chalasani, the chief executive at Association of Mutual Funds in India, at a conference call while announcing the monthly mutual fund data. 

 

The government in the Union Budget 2024-25 reduced the import duty on gold and silver to 6% from 15?rlier. The 6% duty on gold and silver includes 5% basic customs duty, down from 10?rlier, and 1% agriculture infrastructure and development cess, down from 5?rlier.

 

Following the Budget announcement, gold prices on Jul 23, closed nearly 6% lower from the previous close at 68,510 rupees per 10 gm on the Multi Commodity Exchange of India. At the end of July, gold prices on the MCX closed 3.6% lower from the opening price at 69,012 rupees per 10 gm. On Friday, the most active gold October contract on the MCX closed 0.3% higher at 69,895 rupees per 10 gm.

 

 

 

However, continued hope of a 50-basis-point interest rate cut by the US Federal Reserve at the September meeting and ongoing geopolitical tensions in West Asia have supported prices, aiding demand for gold ETFs.   

 

"... There is expectation that the US Federal Reserve will soon begin to ease the monetary policy, and we may start seeing rate cuts. We have seen in the past that gold performs well during periods when (the) US Fed is cutting interest rates," said Ravi Gehani, fund manager, DSP Mutual Fund, in a note.

 

According to the CME FedWatch tool, 49.0% of investors expect a 50-basis-point cut in the key interest rate by the Fed and 51.0% of investors priced in a 25-basis-point cut.

 

On other hand, net inflows into silver ETFs have fallen on month, taking cues from the white metal prices. "Silver prices have fallen slightly owing to weak industrial outlook and demand concern in the top consumer China," Gehani said.

 

However, the growth prospects for silver look strong due to an increased industrial demand from renewable energy and newer uses of technology, Gehani said. "Also, the supply has not been able to meet the demand and as per the silver institute, this supply demand deficit is expected to continue," he added.

 

These factors have restricted a further fall in silver prices and have led to flows into silver funds.

 

Net inflows into silver ETFs were lower by 8% at 7.45 bln rupees in July, the AMFI data showed. The value of assets under management of 11 ETFs in July was 77.8 bln rupees, against 74.7 bln rupees in June, the data showed. The redemption or repurchase for the month was 335.5 bln rupees, higher than 68.2 mln rupees in June. 

 

Currently, the mutual fund industry has 12 silver exchange-traded funds and nine silver fund of funds, as per data provided by Value Research. The number of folios as of Jul 31 was 371,872, up from 323,321 folios as of Jun 30, the AMFI data showed. 

 

However, fundamentally, the growth prospects for silver look strong due to an increased industrial demand from renewable energy and newer uses of technology, which will likely see increased flows into silver ETFs, Gehani said.

 

Similarly, net inflows into gold ETFs are also seen increasing due to continued central bank demand, easing of the Fed's monetary policy, geopolitical uncertainty, and increased gold jewellery demand from topmost consumers of gold, China and India, Gehani said.   End

 

Edited by Akul Nishant Akhoury

 

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