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Big Boost for Gold ETFs

The skyrocketing price of gold has shot gold ETF volumes through the roof

Over the last week, traded volumes of gold ETFs have virtually doubled on the back of the interest aroused by the huge spike in the price of the yellow metal.

The hectic buying activity has been seen in the wake of the price of gold breaching the $1,000 per ounce mark on September 8 – it was $400 some 20 years ago, a compounded growth rate of under 4 per cent. The record was $1,033.90, set last year. Assumptions by analysts are that the price in India may well rise to Rs 17,000 per 10 grammes in the festival season as it unfolds.

Not only volumes, but also the traded turnover on exchanges has registered a similar increase. Gold benchmark ETF registered a rise in its average volumes (for the week September 4 to September 11) from 17,440 units to 36,377 units, which also increased the turnover from Rs 2.67 crore to Rs 5.70 crore, while Kotak Gold ETF saw a rise of 2,766 units to 4,319 units, which translated into a turnover increase from Rs 42 lakh to Rs 67 lakh (see table).

Market experts pinpoint the trend to the approaching festive season in which buying of gold is expected to go further up. Also, inflation concern, which is expected to rise next year, is making investors bet on gold as a hedge. Besides that, what is driving the price of gold up is the fall in the value of the US dollar against other major currencies including Indian rupee. The phenomenally rising stock markets have contributed too in an indirect manner. People have seen the value of their shareholdings rise and they have booked profits on them and shifted the amounts towards gold investments to safeguard them from the vagaries of the market. The fact that there is a concern on the continuity of the rally in equities as well as commodities is in turn pushing them towards gold.

All gold ETFs give the same returns, and the category as a whole has gained by as much as 42.30 per cent over the year (till September 11, 2009), signifying that an investment of Rs 100 would have turned into Rs 142.30 over the period.

According to Association of Mutual Funds in India (AMFI) figures for the month of August, the net inflow in gold ETFs were Rs 15 crore while the total assets under management (AUM) in gold ETFs stands at Rs 904 crore.

The World Gold Council (WGC) report says that there are about 15,000 tonnes of gold in Indian households which makes around 10 per cent of the global stocks.

Volume Wonders
  No. of Units *  Turnover (Rs Cr)*
Fund  4-Sep-09  11-Sep-09  4-Sep-09  11-Sep-09
Gold Benchmark ETF 17440.6 36377.8 2.67 5.70
Kotak Gold ETF 2766.8 4319.2 0.42 0.67
Quantum Gold 721 1943 0.06 0.15
Reliance Gold ETF 5074.4 6965.8 0.75 1.06
UTI Gold ETF 3647.8 7212.6 0.56 1.13
* Averages for the week ending September 4, 2009 and September 11, 2009.