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Informist, Tuesday, Nov. 12, 2024

 

By J. Navya Sruthi

 

MUMBAI – Net inflows into gold exchange-traded funds were at an all-time high in October due to global uncertainties and higher returns, analysts said. Volatility along with negative returns in equity markets have also led to more flows into gold ETFs as gold is a safe-haven asset, they said.  

 

According to data released by the Association of Mutual Funds in India on Monday, gold ETFs saw record flows of INR 19.61 billion in October, up 59% from INR 12.3 billion in September. The gross inflows in October were INR 20.9 billion, significantly higher from INR 14.4 billion in September. The value of net assets under management of 18 gold ETFs at the end of October was INR 445.45 billion, against INR 398.24 billion in September, the AMFI data showed.

 

Whenever there is global uncertainty, people will look at gold as an alternative and, therefore, gold prices keep moving up and there is a flow into A gold ETF, AMFI Chief Executive Venkat Chalasani said Monday.

 

Gold prices in October had hit multiple new all-time highs on both domestic and international exchanges due to geopolitical tensions in West Asia, dovish global central banks, and uncertainties related to the US presidential election. On Oct. 30, the most-active December gold contract hit an all-time high of $2,801.80 an ounce on the COMEX and INR 79,775 per 10 gm on the Multi Commodity Exchange of India. 

 

Volatility and negative returns in equity markets and high returns on investing in gold have caused more flows into gold ETFs, Ajay Kedia, director, Kedia Advisory, said. Along with marketing and awareness about gold ETFs, attractive taxation supports flows into gold ETFs, Kedia 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. 

 

As of Oct. 31, the number of folios in gold ETFs was 5.9 million, up from 5.71 million a month ago. The redemption for the month was INR 1.25 billion, lower than INR 2.09 billion in September. Groww, a fund house, launched a new gold ETF in October, and collected INR 290 million.  

 

On the other hand, net inflows into silver ETFs fell to INR 6.43 billion in October from INR 6.46 billion in September due to volatility in silver prices. The gross inflows in October were largely unchanged from the previous month at INR 8.04 billion. The number of folios under silver ETFs as of Oct. 31 was 446,557, against 424,295 a month before. The redemption was INR 1.61 billion, up from INR 1.58 billion in September, per the data.

 

However, the net assets under management of 12 silver ETFs at the end of October rose 14% on month to INR 123.31 billion due to mark-to-market, as silver prices also rose to a new life-time high in October. The most-active December silver contract on MCX hit an all-time high of INR 100,081 per kg on Oct. 23, taking cues from gold and base metals.

 

SENTIMENTAL IMPACT

Flows into gold ETFs may slow down due to the sentimental impact of a firm dollar index, Kedia said. But, net inflows are seen continuing into both gold and silver ETFs, he added.     

 

The expert expects a shift from gold to silver as the white metal is very likely to outperform the former, as they expect the ratio to decline. The gold-silver ratio measures the ounces of silver required to buy an ounce of gold.

 

"We expect a slight down-side in gold and silver prices in the short-term due to profit-booking, but the falling gold-silver ratio, which is currently around 85, will lead to higher flows into silver ETFs," Kedia said. End

 

Edited by Tanima Banerjee

 

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