Gold ETF investment drops in September amid profit-taking

The flow of funds into Gold Exchange-Traded Funds (ETFs) fell to Rs 175 corer in September, marking a decline from the previous month's 17-month high, largely due to profit-taking. Data from the Association of Mutual Funds in India (AMFI) also revealed a reduction in the asset base of Gold ETFs during this period.

Despite the decrease in inflows, Melvyn Santarita, analyst and research manager, Morningstar Investment Adviser India, believes that gold's appeal as a safe haven and hedge against inflation will persist, especially given rising interest rates in the US, persistently high inflation, and a slowdown in economic growth.

September ETF decline

The data indicates that Gold-linked ETFs attracted Rs 175.3 crore in investments last month, a drop from Rs 1,028 crore recorded in August. In July, the inflow was Rs 456 crore. Prior to this, Gold ETFs experienced inflows of Rs 298 crore during the April-June period, following three consecutive quarters of outflows.

In the preceding quarters, withdrawals amounted to Rs 1,243 crore in the March quarter, Rs 320 crore in the December quarter, and Rs 165 crore in the September quarter. Notably, in August of the current year, Gold ETFs saw their highest monthly inflow since April 2022, when they attracted Rs 1,100 crore amid the Russia-Ukraine conflict.

Gold price analysis

Santarita pointed out that gold prices have dropped from their historical highs, creating an attractive buying opportunity, particularly following the sharp rally they have experienced since March. The performance of gold in recent years has piqued the interest of many investors, as reflected in the consistent growth in the number of investor accounts for Gold ETFs, which increased by nearly 11,000 folios to 48.06 lakh in September, up from 47.95 lakh in the previous month.

This surge indicates a growing inclination amongst investors toward gold-related funds. However, the assets under management of Gold ETFs declined to approximately Rs 23,800 crore in the reviewed month, down from Rs 24,318 crore in August.

Gold ETFs are passive investment vehicles that track the domestic physical gold price and are based on gold prices, investing in gold bullion. Essentially, they represent physical gold in paper or dematerialised form, with one Gold ETF unit equivalent to 1 gram of high-purity physical gold. These instruments offer the flexibility of stock investments combined with the simplicity of gold investments.

(With PTI Inputs)