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Informist, Wednesday, Sep 11, 2024

 

By J. Navya Sruthi

 

MUMBAI – Net inflows into gold exchange-traded funds continued to be the highest since June 2020 for the second straight month in August, as per the data compiled by Informist.

 

According to data released by the Association of Mutual Funds in India on Tuesday, gold ETFs saw net inflows of 16.1 bln rupees in August, 20.5% higher than 13.4 bln rupees the previous month. The gross inflows in August were 21.30 bln rupees, against 14.65 bln rupees in July.

 

Attractive taxation on gold ETFs and lack of new issues of sovereign gold bonds have boosted flows into gold funds, Juzer Gabajiwala, director, Ventura Securities Ltd, said. Amid no new issues of sovereign gold bonds, investors have been shifting their money to gold ETFs after redemption or maturity of the bond, he said.       

 

In the Budget for 2024-25 (Apr-Mar) presented in July, the government had said that gold and silver ETFs will now qualify for long-term capital gains taxation of 12.5% if held for over 24 months. Earlier, these funds were taxed at the investors' tax slab rate.   

 

The value of assets under management of 17 gold ETFs at the end of August was 373.90 bln rupees, against 344.55 bln rupees in July, the AMFI data showed. As of Aug 31, the number of folios was around 5.7 mln, up from 5.5 mln as of Jul 31. The redemption for the month was 5.18 bln rupees, higher than 1.28 bln rupees in July.

 

Further, the cut in gold import duty by the Indian government in the recent Budget also increased flows into gold ETFs, Ajay Kedia, director of Kedia Advisory, said. The government in the Union Budget had 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.

 

Experts expect that the ongoing geopolitical tensions, over-valuation of equity markets, and the likely easing of monetary policy by major central banks will attract more inflows into gold ETFs going forward.

 

Two major central banks – the US Federal Reserve and the European Central Bank – are expected to cut key interest rates this month. The ECB's monetary policy is due Thursday, while the US Federal Open Market Committee is scheduled to announce its rate decision on Sep 18.  

 

Market participants expect the ECB to cut the deposit rate by 25 basis points to 3.50%, marking the second rate cut this year. Markets also expect an additional cut in December, potentially totalling three 25 bps reductions this year. ECB was the first major central bank to cut key interest rates by 25 bps in June.

 

Today, the CME Fedwatch tool data showed that 67% of market bets are on a 25-bps interest rate cut by the US Federal Reserve and 33?ts are on a 50-bps rate cut. 

 

Net inflows into gold ETFs are also seen increasing due to continued central bank demand and increased gold jewellery demand from the topmost consumers, China and India, Kedia said. 

 

According to a recent report by the World Gold Council citing the International Monetary Fund, global central banks have increased their gold purchases in July to 37 tn, up from 12 tn in June. This is the highest monthly total since January, when purchases were 45 tn, the WGC said.  End

 

Edited by Tanima Banerjee

 

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