Tuesday, June 29, 2010

Wait for prices to fall before investing in Gold ETFs: Experts

Gold Exchange Traded Funds (ETFs), where money is parked in bullion, have seen their assets rising over 15% in last two months, but analysts feel investors should wait since a correction in gold prices is round the corner.

Gold ETFs are open-ended mutual fund schemes that invest the money collected from investors in standard gold bullion. Gold ETFs are traded in exchanges and each unit of gold ETF is equivalent to 1 gm of gold.

The soaring gold prices, mainly on account of uncertainty in global economic recovery and stock market volatility, have made Gold ETFs more attractive for investors.

``Investors should go slowly in investing in gold ETFs as the market is waiting for some correction to happen,`` Kotak AMC`s Head (Products) Lakshmi Iyer said.
``Gold has seen a huge run-up so far which suggests that whenever there is some correction, one should put 5%-10% of the overall portfolio in gold ETFs with a long term horizon,`` Iyer added.

As per data from Association of Mutual Funds of India (AMFI) assets under management of Gold ETFs rose 15.5% to Rs 18.37 billion in May compared to Rs 15.90 billion in March.

Value Research CEO Dhirendra Kumar said with gold prices touching new highs, the real consumption has disappeared and there is lot of volatility in the market.

``One should stay away from gold ETFs since its scale of business is too small in India and there are other places like equities and mutual funds where you can invest,`` he noted.

On the other hand, soaring gold prices have also resulted in redemption pressure on Gold ETFs. In May, these funds saw a net outflow of Rs 60 million, as many investors booked profits.

Last month, Gold ETFs witnessed an inflow of Rs 800 million while the outflow stood at Rs 860 million.

According to Religare Commodities President Jayant Manglik, Gold ETFs in the country are doing extremely well and as much as 10% returns can be expected from these funds in the next months.

``Gold ETFs move in line with the gold prices. The immediate future of investment in gold ETFs is quite positive. There is financial insecurity across the globe... In such a scenario gold ETFs are the best place to be,`` Manglik said.

In recent months, gold prices touched many record highs. In May, it had touched a high of Rs 18,629 a 10 grams, while in the international market it went up to USD 1,248.55 an ounce (28.35 grams).
Bombay Bullion Association data shows that gold imports declined by over 50% to 17 tons in May as compared to 34.2 tons in April due to surge in gold prices.

The surge in prices internationally has been triggered by higher demand in European markets in the wake of debt crisis that has weakened euro as well as concerns about global economic recovery.

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