Gold ETFs fail to attract investors despite price rise

The strong rally in the prices of gold to their two-year high has failed to attract fresh inflows into gold exchange traded funds (ETF) in India though the uncertainty in the global markets in the wake of British vote to exit the European Union has slowed down the pace of outflows from such schemes.

According to the latest data on net redemptions and purchases released by Association of Mutual Funds in India (AMFI), the gold ETFs witnessed an outflow of Rs 80 crore in the month of June taking the total outflow from su-ch schemes to Rs 228 crore in 2016. Funds focussed on equities have seen a net inflow of Rs 320 crore in June taking the total infl-ows into equity schemes to Rs 9,479 crore in 2016.

While increasing fears about Brexit and its potential impact on the global economic growth pushed the yellow metal to a two-year high in the international market, the depreciation of Indian rupee against the dollar helped gold prices to climb further high in the domestic market.

“India is a contrarian story in a weak global environment. Gold as an asset class will draw a large number of investors only when other asset classes have lost its sheen. With economic growth expected to gain momentum in the coming days on the back of a good monsoon and revival in investment cycle, the domestic equity markets are offering a long-term growth opportunity. On the day when equity markets tanked due to Brexit, we actually saw a significant increase in application from retail investors,” said Dinesh Khara, managing director, SBI Mutual Fund.

This according to him is the main reason why gold ETFs have so far failed to attract fresh investment in India. However he added that the sudden spike in the prices of the yellow metal has managed to stem the outflow from such schemes.