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Profit Gloss For Gold

That gold prices are up is no secret. Gold ETFs are up too. But gold funds proved to be the real blockbusters

Gold has been hitting the headlines as regularly as stock markets over the last few months. While gold has time and again climbed over its all-time high, breaking records virtually on a daily basis, yet stock market indices are still far from their all-time highs.

Looking forward, while many commodity analysts like Jim Rogers, chairman of Singapore-based Rogers Holdings (famously predicted the start of the commodities rally in 1999), are saying that gold will be heading for above $2,000 levels, yet no one is talking about Sensex, or any other stock market across the globe, getting anywhere near their record highs.

Gold, with prices climbing at this pace, has still managed to create a new euphoria, especially as there is talk of stock market correction, a glimpse of which was seen in October and start of November, making people flee to the safety that gold affords. The falling value of the US dollar is adding gloss to gold.

Getting into the act, and driving the price of gold across another all-time high, was the Reserve Bank of India (RBI), which purchased 200 metric tonnes of the commodity from the International Monetary Fund (IMF) - adding fuel to the euphoria, so to speak.

Following these developments, we charted the performance of gold ETFs along with the performance of the funds that invest in stocks of companies that are associated with the commodity.

Coming as a revelation was the fact that DSPBR World Gold Fund has more money (AAUM: Rs 1,600 crore) than the six gold exchange traded funds (ETFs) combined (AAUM: 1,058 crore). This fund invests through the Merrill Lynch International Investment Funds – World Global Fund (MLIIF-WGF). It invests in other overseas mutual funds as well.

The other fund that has exposure to stocks of gold mining companies is AIG World Gold Fund. It does not directly invest in such companies, but will do so through investments in other mutual funds, preferably Falcon Gold Equity Fund.

Gold investments over the year has been mostly a profitable exercise and this shows in the returns posted by most funds. Gold ETFs have a 1-year trailing return of around 43 per cent, Compared to that, AIG World Gold Fund has a return of 104 per cent, while DSPBR World Gold Fund has a return of 88 per cent. However, it has been showing negative returns over the last one month period – it thereby became the only fund, dealing in gold, to be in the red.

Also, while most gold ETFs are giving almost the same returns of 43 per cent, both the gold funds have generated more than double that amount of gains (check table).

Glittering performances
Funds  1 Month  6 Months  1 Year
AIG World Gold 7.73 36.32 104.46
DSPBR World Gold Reg -3.14 21.37 87.66
Gold Benchmark ETF 6.68 17.71 43.70
Kotak Gold ETF 6.69 17.32 43.18
Quantum Gold 6.68 17.44 43.03
Reliance Gold ETF 6.69 17.45 42.81
SBI Gold ETS* 6.57 - -
UTI Gold ETF 6.70 17.51 43.23
All data are the trailing returns as on Novemeber 4, 2009
*The funds existence has been for less than 6 months

While it is true that funds with some exposure to stocks have performed better than the gold ETFs, but it is also true that these funds have fallen more during the middle of the year. In June, 2009, when gold ETFs fell about 2 per cent, AIG World Gold Fund went down by 11 per cent and DSPBR reported a fall of 8 per cent.