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Gold ETFs Shine

After facing a slump soon after their launch, gold exchange traded funds have begun to recover on yellow metal's rebound over the past month

After losing their sheen for a few months, gold Exchange Traded Funds (ETFs) have begun to glimmer, if not dazzle.

The one-month return (as on August 6, 2007) of Gold Benchmark ETF stood at 3.88 per cent while UTI Gold ETF returned 3.91 per cent. This was a sharp jump where the returns were 0.73 per cent and 0.74 per cent respectively for the one-month period ended August 3.

This would definitely bring a sigh of relief to investors who have seen the value of their investments fall. Gold Benchmark ETF was launched in February 2007 and has a negative return of 5.38 per cent since launch (as on August 6). UTI Gold ETF, launched a month later, has a negative return of almost 6 per cent since launch.

The Net Asset Values (NAVs) of these funds have been quite volatile. Take the 80-day trading history of UTI Gold ETF. The fund has moved up or down by more than 1 per cent 15 times. In the 97-day history of Gold Benchmark ETF, the fund has fluctuated by over 1 per cent 18 times. On April 25, both the funds were down by over 2 per cent when gold prices dipped by 1.19 per cent.

The current positive return can be attributed to the rising prices of the yellow metal over the past one month. Since the start of the year, the price of gold had fallen by around 5 per cent till the first week of August. The recovery began from July 6, when the price of gold hit rock bottom. Since then, the price rose by around 2.7 per cent till August 3, 2007.

Gold exchange traded funds allow investors to gain exposure in commodity markets without setting up futures trading accounts or taking physical delivery. Another benefit of gold ETFs is that the investor is not liable to pay securities transaction tax or wealth tax owing to its dematerialised form. Gold held in ETFs worldwide rose 66 percent to 604 tonnes in 2006

Other asset management companies - Tata Mutual Fund and ICICI Prudential Mutual Fund - are planning to launch gold ETFs soon. Not surprising since India accounts for a quarter of global sales and is the largest consumer of gold.

(The corresponding figures for Kotak Gold ETF were unavailable since the fund was launched in July this year.)