Gold ETF inflows down 50% as prices surge. Should you stop investing?

Even though the ongoing pandemic risks make a strong case for gold, investors might be having second thoughts about investing in the pricey yellow metal that have hit new highs lately. Gold ETF inflows have fallen around 50% in June, according to the data released by AMFI. Mutual fund analysts and managers believe that the inflows were hit because of the spike in gold prices and rising equity markets.

The gold ETF category received a net inflow of Rs 494 crores in June. The category received a net inflow of Rs 731 crore and Rs 815 crore in April and May respectively. “The flows during the month of June were lower than the previous few months. The surge in gold prices in the recent times could have led many investors to stay on the sidelines and restricted them from taking significant exposure in gold,” says Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

Gold has been one of the better performing asset class since 2019 and this 2020 so far. Gold ETFs have received net inflows to the tune of Rs 3,723 crore from August 2019 till June 2020. Gold funds have been topping the return charts in one, three and five years. Gold funds have offered 41.09% in one year, 19.49% in three years and 11.90% in five years. However, the recent surge in the equity market is seen as another reason for lower inflows into gold ETFs.

Gold prices have jumped from Rs 39,000 per 10 grams in the beginning of 2020 to record breaking Rs 49,500 recently.“Covid-19 pandemic is a health crisis snowballed into a financial crisis and thus when pharma companies started drug trials, international markets reacted. Many investors who want to make quick bucks saw this as an opportunity. With gold process reaching a historical peak, investors might have stayed away for some time,” says Chirag Mehta, Fund manager, Alternative investments, Quantum Mutual Fund.

Mehta says that historically, gold investors have always stayed on the sidelines when there has been a huge jump in gold prices and the June inflow data reflects the same. However, both the experts believe that investing in gold is not a bad idea even at these levels. “Considering the threat posed by the coronavirus pandemic to the global economy and the markets, this segment may continue to gain traction from investors. Gold functions as a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws it’s a safe-haven appeal, which has been on full display since 2019,” says Himanshu Srivastava.

“The uncertainties related to the health crisis are still intact. Till there is a solution to this and we have a way to get back to normal, gold will continue to stay strong. Even afterwards, the central banks might continue to remain accommodative to undo the crisis and that would keep gold strong. Overall, gold has a very positive outlook in the coming two-three years at least. Investors who have no allocation should invest 50% as lumpsum and stagger the rest and those who are already invested should continue with their investments,” says Chirag Mehta.

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