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Informist, Friday, Oct. 11, 2024

 

By J. Navya Sruthi

 

MUMBAI - Gold and silver exchange-traded funds saw lower net inflows in September as prices of both the precious metals rose to all-time highs, analysts said. The decline in inflows in September is likely to be a one-off and investments in gold and silver ETFs are likely to pick up in coming months, they said.

 

According to data released by the Association of Mutual Funds in India on Thursday, gold ETFs saw net inflows of INR 12.3 billion in September, down 23.5% from the all-time high of INR 16.1 billion in August. The gross inflows in September were INR 14.4 billion, down from INR 21.3 billion in August.

 

The lower net inflows into gold ETFs were mainly due to the high prices of the yellow metal and also due to "Pitru Paksha" in September, Navneet Damani, head of research, commodities and currencies at Motilal Oswal Financial Services, said. "Pitru Paksha", observed during Sept. 17-Oct. 2 this year, is a 16-lunar day period in the Hindu calendar and is considered inauspicious to buy gold or other precious metals.

 

The most-traded December gold contract on the Multi Commodity Exchange hit an all-time high of INR 76,000 per 10 gm on Sept. 25, rising 6.3% from the month's opening price. This was due to high gold prices on COMEX following the US Federal Open Market Committee's decision to cut interest rates by 50 basis points in September and geopolitical uncertainties in West Asia. At 1718 IST, the most active December gold contract was INR 75,850 per 10 gm, up 0.7% from its previous close.

 

Similarly, net inflows into silver ETFs plunged to INR 6.46 billion in September from INR 16.64 billion in August. The gross inflows in September were INR 8.04 billion, down from INR 17.26 billion in August.

 

The decline in inflows into silver ETFs is because of the volatility in prices, Ajay Kedia, director of Kedia Advisory, said. Further, high prices of the industrial metal also limited flows, Kedia said.

 

The value of assets under management of 17 gold ETFs at the end of September was INR 398.24 billion, against INR 373.90 billion in August, the AMFI data showed. Similarly, the net AUM of 12 silver ETFs at the end of September rose 12.4% on month to INR 108.40 billion.  

 

While prices of gold and silver weighed on inflows, the high prices boded well for the value of net AUM. Analysts said the net AUM rose due to "mark to market".

 

As of Sept. 30, the number of folios in gold ETFs was 5.71 million, up from 5.66 million a month ago. The redemption for the month was INR 2.09 billion, lower than INR 5.18 billion in August. The number of folios under silver ETFs as of Sept. 30 was 424,295, against 421,760 a month before. The redemption was INR 1.58 billion, up from INR 619.5 million in August, per the data.

 

A ONE-OFF?

The safe-haven appeal due to factors like rising geopolitical tensions in West Asia and further interest rate cuts by the US Federal Reserve are likely to support flows into both gold and silver ETFs, analysts said.

 

Lower flows into gold and silver ETFs is "a one-off thing", Damani said, adding that the flows into these funds are likely to pick up. Kedia, who also believed that the decline was a one-off, said the recent tightening of norms for equity futures and options by the Securities and Exchange Board of India may lead to a shift from the derivatives market to ETFs.

 

However, Damani said there might be a "sideways" movement in inflows into gold ETFs till the prices correct from the present levels. "After hitting (an) all-time high in September, we expect gold prices to correct by 3-5% (from the current level), to INR 72,000-73,000 (per 10 gm)," he added.  End

 

Edited by Saji George Titus

 

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