Investors move to gold amid growth concerns, ETF inflows at 2-year high

Industry players said worsenining geopolitical scenario, tightening of interest rates and volatile equity markets have led to investors showing faith in the yellow metal

Gold exchange traded funds (ETFs) saw monthly inflows of Rs 1,100 crore in April, most since February 2020. Industry players said the worsenining geopolitical situation, tightening of interest rates and volatile equity markets have led to investors showing faith in the yellow metal.

Himanshu Srivastava, associate director–manager research, Morningstar India says, “Continuation of geopolitical tension due to the war between Russia and Ukraine, surge in crude prices and concerns over surge in inflation globally as well as domestically, has once again diverted investors focus on yellow metal, which draws its appeal as safe-haven during difficult environment and as a hedge against inflation.”

In the last three months Gold ETFs on an average have given returns of nearly 5 per cent, while one-year average returns stands at 6.4 per cent, shows the data from Value Research.  

Gold prices have came-off their highs, dropping nearly 5 per cent in the last few weeks amid a strong rally in the US dollar and rising bond yields.

“Moreover, uncertainty and challenges faced by the equity markets would have also prompted investors to diversify their portfolio by adding some exposure to Gold ETF, which in the current scenario appears to be a relatively attractive investment option,” added Srivastava.

Typically, 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.

Even during the challenging investment environment posed by Covid-19 and economic downturn, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors’ portfolios.

Ghazal Jain, fund manager- Quantum Gold ETF at Quantum AMC says, “The Fed’s tightening cycle will continue to put downward pressure on gold for the next couple of months. On the other hand, worries about growth, geopolitics, and inflation will keep demand supported. A growth slowdown, high debt levels, and financial market instability will ensure that the Fed’s tightening is short-lived, making conditions conducive for gold again.”