Gold ETFs continue to glitter; attract Rs 657 crore in January

Gold Exchange Traded Funds (ETFs) attracted Rs 657 crore in January, marking a seven-fold jump compared to the previous month, according to Amfi data.

Experts believe that the appeal of the precious metal as a safe haven and hedge against inflation will continue amid ongoing geo-political tensions and higher inflation in the US.

The inflow helped inflate the assets under management (AUM) of gold funds by 1.6 per cent to Rs 27,778 crore by the end of January compared to Rs 27,336 crore at the December-end, the Association of Mutual Funds in India (Amfi) data showed.

The net flows in Gold ETFs were sharply higher at Rs 657.4 crore in January from Rs 88.3 crore in the previous month, the data showed. The launch of Tata Gold Exchange Traded Fund which garnered Rs 6 crore also aided the growth.

With ongoing geo-political tensions and US inflation still higher than the desired number, the appeal of Gold as safe haven and hedge against inflation is expected to continue, Melvyn Santarita, Analyst at Morningstar Investment Research India, said.

"Gold prices in US Dollar terms scaled new highs after going past the USD 2,100 per ounce mark in early December 2023 but since then has come down gradually. In Rupee terms, gold has done fairly well over the last year but dwarfs in comparison to how equities have fared.

"Given this backdrop, flows in the Gold ETF category have been somewhat patchy. Some investors could be choosing to opt for a risk on approach to investing with the anticipation of a reversal in rate cycle going ahead," he added.

In 2023, Gold ETFs witnessed an inflow of Rs 2,920 crore, which was higher than the Rs 459 crore inflow seen in 2022.

The attractiveness of gold as a safe haven and a hedge against inflation enhanced significantly in 2023. Rising inflation, subsequent interest rate hikes, and geopolitical events boosted the demand as investors sought a secure investment option.

Gold, with its superlative performance over the last few years, has garnered substantial investor interest and the consistent increase in folio numbers serves as a testament to its attractiveness.
During the month, the folio numbers in gold ETFs rose to 49.72 lakh in December 2023 from 49.11 lakh in December 2022. This indicates a growing inclination among investors towards funds related to gold.

Gold ETFs, which aim to track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion.

Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. They combine the flexibility of stock investments and the simplicity of gold investments.