This article appeared in the December 15, 2009 - January 14, 2010 issue of Mutual Fund Insight magazine.
All asset classes are seeing an appreciation in prices. Be it gold, equity or commodities. While gold is getting a fair bit of attention with investors who have missed the bus wondering if they can still make a profit, the investment avenue is not too popular. A Gold Exchange Traded Fund (Gold ETF) is a convenient way to participate in the gold rally, but it does not seem to have found many takers.
Globally, investors are gravitating towards Gold ETFs. The share of Gold ETFs as a percentage of total identifiable demand for gold has increased. According to a report of the World Gold Council, the net retail investment (in tonnes) in Gold ETFs and similar products has increased 27 per cent in 2008, over 2007. In the first three quarters of 2009, the net retail investment was 563.20 tonnes as compared to 226.20 tonnes over the same period last year. That translates into an increase of around 150 per cent.
Apparently, holding gold in a paper form does not catch the fancy of Indian investors. Gold ETFs in India have cumulative assets of just Rs 1169.23 crore (November 30, 2009). On a more optimistic note, they have increased almost five times from Rs 226.40 crore in April 2007, when the first Gold ETF made an appearance. But Gold ETFs form just 0.60 per cent of total equity assets in India. There are a total of six Gold ETFs, the largest being Gold Benchmark ETF with assets of Rs 518.24 crore, the smallest being SBI Gold ETS with assets of Rs 92.28 crore.
Last year the equity market crashed, though Gold ETFs delivered a return of 25 per cent and was the second best performing category of mutual funds. Still, total inflows into Gold ETFs were just Rs 271 crore, while net inflows were a mere Rs 89 crore. This year (November 30), inflows have increased to Rs 526 crore (net inflows: Rs 330 crore).
Indians clearly prefer holding their gold in a physical form.
Largest Gold ETF
DSPDR Gold Shares is the largest Gold ETF in the world. Originally listed on the New York Stock Exchange in November 2004, it now also trades on the Singapore Stock Exchange, Tokyo Stock Exchange and the Stock Exchange of Hong Kong. The amount of gold currently held in the form of gold bars in a Trust is 1,116.25 tonnes. Its value was been pegged at $40,332,797,729.46 when the spot price of gold in the U.S. was at $1,114.80/ounce (December 12, 2009).
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