Gold meltdown hits ETFs hard

Mumbai: The fall in the prices of gold during the past two weeks has led to sharp erosion in the value of gold schemes offered by mutual funds. Gold schemes have emerged as one of the worst performers among various mutual fund schemes.

According to the data available with Value Research, an online MF tracking firm, gold funds on an average have delivered a negative return of 11.16 per cent over the past one year. In the six months, the price of physical gold fell by 10.7 per cent. Experts, meanwhile, claim a further fall in gold price in short-term.

“The gold remains bearish and the prices are likely to decline to Rs 23,000-Rs 23,500 per 10 grams in a week to month time. This is mainly because the market is nervous of the outcome before July 29, when the US Federal Reserve will take a decision on rate hike. Whatever be the decision, it will be negative for gold,” Commtrendz Research Director Gnanasekar Thiagarajan said.

Echoing similar views, Angel Broking associate director, commodities and currencies Naveen Mathur said the prices are likely to be in the range between Rs 23,500-Rs 24,000 by the end of December. While the sentiments towards gold have turned negative, fund managers maintained that the industry hasn’t witnessed any major redemption pressure in gold ETFs on account of the plunging spot prices.

“As far as the inflow and outflows are concerned, the industry is witnessing a steady outflow of funds from the gold schemes over the past few months. However, the industry hasn’t seen any sudden spike in redemption pressure so far,” said Lakshmi Iyer, chief investment officer (debt) and head products at Kotak MF.

While Axis Gold ETF has seen its net asset value (NAV) drop by 12.21 per cent, Kotak Gold Fund in the last one year, UTI Gold ETF and ICICI Prudential Gold ETF have seen their NAV fall by 12.52 per cent, 12.52 per cent and 12.27 per cent respectively. Most of the gold schemes have scene a double-digit decline in their NAV during the period.

According to Ms Iyer, gold prices are expected to further fall in the coming days and investors who are planning to invest in gold could wait for the prices to stabilise. “The prices of yellow metal is likely to touch $1,000 per ounce in the coming days. It may not happen immediately, but it will be a gradual process,” she added.

Dinesh Khara, MD and CEO of SBI MF said that investors would continue to invest in gold irrespective of their prices as part of their diversification strategy. “The current fall in gold prices have given a good opportunity for investors to look at gold with a long term perspective,” he said.