Flows into gold ETFs continue despite a soaring Sensex

Inflows into gold ETFs continued despite a soaring equity market. Latest figures released by mutual fund industry body, the Association of Mutual Funds in India (AMFI), showed gold ETFs saw inflows of ₹384 crore during October, taking the overall assets under management to ₹13,969 crore.

In October, equity market benchmark Sensex had risen about 4%. Gold exchange-traded funds (ETFs) saw staggering net inflows of over ₹2,400 crore in the three months ended September 30, as investors continued to hedge their exposure to riskier assets due to higher economic uncertainty resulting from COVID-19.

Month-wise, investors put in a net ₹202 crore in January, ₹1,483 crore in February, but withdrew ₹195 crore in March on profit-booking.

Inflows resumed in April at ₹731 crore, followed by ₹815 crore in May, ₹494 crore in June, ₹921 crore in July, ₹908 crore in August and ₹597 crore in September.

Gold-backed ETFs are passive investment instruments that are based on price movements and investments in physical gold.

After hitting a record high of ₹56,200 per 10 gram in futures market, gold prices lost some momentum in September and October. Currently, they are trading closer to ₹52,500 after a strong rally last week.

Nish Bhatt, Founder & CEO, Millwood Kane International, says: "Gold prices have seen a stellar rally in 2020, risen nearly 33% since the start of the year. The outbreak of COVID19 created global uncertainties and pushed gold prices upwards. Major central banks - Fed, ECB & BoE have slashed interest rates to an all-time low, diverting investments towards the yellow metal. Currently, the yellow metal is rallying as the government in parts of Europe has imposed lockdown due to the second wave of COVID cases. It threatens to derail the recovery seen till now."

"Clarity on the new US President will pave the way for the latest stimulus package from the US government helping the rally seen in the yellow metal. Back in India, the festive season gold buying is also seen pushing gold prices upwards. Expect gold prices to trade on a strong note till clarity emerges on a vaccine, stimulus package in the US, proper handover of administration in the US, and control on COVID cases in Europe," he added.