Gold ETF inflows fall by 50 percent due to price surge

Gold ETF inflows fall by 50 percent due to price surge

Gold has hit new highs lately, but investors are still having second thoughts about investing in gold. Though the pandemic makes for a strong case for gold, gold ETF inflows have fallen by 50 percent. As per mutual fund analysts and managers, inflows have been hit because of the rise in gold prices and also rising equity markets. 

The inflows for June have been lower than that of the previous months. A rise in gold prices has also caused a lot of investors to stay on the sideline. 

For all of 2019 and 2020 so far, gold has been one of the best-performing assets. Gold ETFs received inflows worth INR 3,723 crores from August 2019 onwards, and gold funds have topped the charts in one, three, and five years. Gold funds have offered 41.09 percent, 19.49 percent, and 11.90 percent in one, three, and five years. The recent surge in the equity market is yet another reason for low inflows into gold ETFs.  

From the beginning of 2020 to recent times, the prices for gold have jumped from INR 39,000 for 10 grams to INR 49,500 recently. 

The pandemic has unleashed both a health and a financial crisis. Therefore, when pharma companies started to conduct drug trials, international markets began to react. Investors who want to make quick money are seeing this as an opportunity. 

Whenever there has been a huge jump in gold prices, gold investors have stayed on the sidelines. The data for June inflow reflects the same. 

Even at these levels, investing in gold is not a bad idea. And keeping in mind the threat that the pandemic has posed to the economy and the markets, the segment will continue to gain a footing among investors. In any investor’s portfolio, gold is a strategic asset. This is because gold can behave as an effective diversifier and alleviate losses that occur during market conditions and downturns. This is what gives gold a haven kind of appeal. And this has been on full display since 2019. 

There continue to be uncertainties related to the health crisis. And till there is no solution to this and things don’t get back to normal, gold will remain strong. Even after this, the central bank will continue to remain accommodative. This would help to undo the severe repercussions of the lockdown, which would again keep gold strong. 

All in all, gold has a positive outlook in the coming years. Investors with no allocation should invest 50 percent as a lump sum, and they can then stagger the rest. On the other hand, those who are already invested should continue to do so.