Why are gold ETF prices soaring all of a sudden?
NEW DELHI: With gold prices rising in the wake of slowdown signals, trade wars and stock market volatility, India’s Gold Exchange Traded Funds (ETF) have become lucrative options, with returns this year looking extremely attractive.
The prices of most Gold ETFs on the National Stock Exchange (NSE) have risen by 16-18 per cent between April 1 this year and the end of trading on Friday.
In contrast, Nifty 50 index fell 4.79 per cent. Over a three-month period, the increases look even more attractive — HDFC Gold ETF, for instance, increased by 20.45 per cent and UTI Gold ETF by 20.55 per cent. Other Gold ETFs such as Axis, Birla Sunlife, ICICI Prudential, Reliance and Kotak have similar impressive figures to quote.
However, this huge surge is fuelled by a sudden bull run in the gold market. Frazzled investors have rushed in to buy gold after fears emerged of a worldwide recession. Gold prices have risen by nearly 8 per cent in rupee terms since August 1 and by 17.86 per cent since January 1, this year.
Gold prices surged in the week gone by to Rs 4,890 for 10 grams of 24-carat gold as investors scrambled to find safe havens to park their cash. Equity markets not only in India but worldwide went into a tailspin on mounting slowdown and trade and currency wars fears.
If taken over a longer horizon, traded values of Gold ETFs haven’t really risen by any great extent. Over a five-year period, money invested in HDFC Gold ETF increased by 5.04 per cent and UTI Gold ETF by 5.08 per cent. In contrast, the Nifty rose by 7.67 per cent during the same period.
Amit Bannerjee, an independent banker specialising in East Asian funds, said, “The global slowdown fears have peaked, as have gold valuations. Historically, the stock market usually serves better returns than the bullion market, though the latter is seen as a safe haven and a steady bet.”
Goldman Sachs predicts that gold prices could rise to $1,600 per ounce from the current $ 1500 an ounce. “If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” Goldman analysts said in a note this week.
“Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term,” they said.
However, prospects, in the long run, are certainly not that rosy. “However, unless there are war-like skirmishes in West Asia or the sub-continent, I doubt if the gold value will go up too much. Recessionary fears cannot persist for all time,” Bannerjee said.
Over a 20-year cycle, gold has increased in value by over 6.5 times. The Bombay Stock Exchange (BSE) Sensex in the same period has, however, gone up 10 times.
16-18% increase in prices of Gold ETFs on NSE between April 1, 2019, and August 9, 2019.
20.45% increase in HDFC Gold ETF, while UTI Gold ETF surged by 20.55 per cent
Bull run in the gold market
The huge surge in Gold ETF prices is fuelled by a sudden bull run in the gold market. Frazzled investors have rushed to buy gold after fears emerged of a worldwide recession. Gold prices have risen by nearly 8% since August 1.