The Hindu Business Line : Profit booking seen in Gold ETFs

Mumbai, Feb. 12 As gold prices keep hitting newer highs, investors enjoy a gala time booking profits. The yellow metal has been trading at an all-time high during the past one month. This has prompted investors in Gold Exchange Traded Funds (ETF) to liquidate their position to book profit, say analysts.

Spot gold prices hit an all-time high of Rs 11,895 per 10 gms on Monday; but the underlying inventory of the four listed gold ETFs have fallen below four tonnes as at end-January, showing a 16 per cent dip from in December.

Commitments

Market men attribute the fall in inventory to choppy market scenario. “After January 22 the market has been rather volatile and investors have lost quite a bit of money in the equity markets. So in order to make up for their losses and to meet other financial commitments, investors seem to be booking profits by selling their positions in gold,” said Mr N.S. Ramaswamy, Head Commodities, Ventura Securities.

Funds value

This northward journey of the safe haven commodity’s prices could be the reason why inventory of the ETFs may have slipped and also the reason why the value of these funds has increased say market men.

The value of assets held by the ETFs aggregates Rs 475 crore, as per data available on AMFI Web site. The total value of assets of Gold ETFs has increased by 1.7 per cent in January 2008. (Value of assets is calculated by gold price multiplied by number of units. The rise in gold price compensated the fall in units).

The total value of assets of Benchmark’s Gold ETF was Rs 140 crore in January. This is a 4.47 per cent increase from the fund’s value in December 2007.

UTI Gold ETF too saw an increase in their fund value by 7.14 per cent while their collections slipped by 2.3 per cent last month. Reliance Gold ETF and Kotak Gold ETF, on the other hand, saw a dip not just in their collections but also in the value of their fund.

portfolio diversifier

The value of Reliance fund fell by 1.3 per cent and their collections by 14.65 per cent. Kotak’s fund value fell by a whopping 17.39 per cent and their collections by 28.57 per cent.

“If you see, the Sensex has fallen by 18 per cent in the last one month, while the returns of gold have increased by 12 per cent. What people don’t realise is that gold is a portfolio diversifier.

The younger generation don’t seem to want to invest in commodities such as gold; they seem to be more inclined towards the equity market,” said Devendra Nevgi, CEO & CIO, Quantum Asset Management, a mutual fund.

Quantum has just launched its new Gold ETF, which will be listed on the NSE soon. Mr Nevgi said that the investors should invest in gold ETFs as it is a hedge against any stock market crisis.

Slip in collections

“Treatment of investors of gold ETFs as any other mutual fund could be another reason why we are seeing the slip in the collections of theses funds. People treat the gold ETFs like any other mutual fund because they are not holding gold in the physical form. So they trade in these ETFs as they would in stocks in the equity market. When the ETFs were first launched in the country, international price of gold was around $780 per ounce. Now the market is over $900/oz, this could be the reason why the investors are now selling off their positions in gold to make up for the losses that they might have made in the equity markets,” explained Mr Ramaswamy.

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