Gold ETFs post 25% return in 3 months

Investors looking at commodities market as profitable avenue

Safer option: A file photo of gold bars.

Tania Kishore Jaleel

Mumbai, March 10 After suffering huge losses on the bourses investors are looking for safer options such as gold ETFs to invest their money. Not surprising then, the gold ETFs listed on the NSE have outperformed the equity markets. While the benchmark index, the Sensex has fallen 20 per cent in the last three months, gold ETFs have given returns of more than 25 per cent. Since December 10, 2007, the Benchmark Gold ETF has surged 28 per cent, UTI Gold ETF has risen 21 per cent, both Kotak and Reliance Gold ETFs have recorded a 27 per cent rise. Quantum Gold ETF has increased five per cent since its debut on the bourses on February 28.

"Investors are looking for more profitable avenues like the commodities market. The equity markets are rather choppy now; the real estate sector is not giving much return either. Also the bond and the fixed deposits are giving negative returns, so ultimately investors are putting their money into the commodities market," said Mr Shailendra Kumar, Head-Commodity Research, Sharekhan Ltd.

Analysts say that people are rather bullish on gold, due to which gold prices have been rallying for a while now. In the past three months alone, spot gold prices have increased 25 per cent.

Weak $ helps

"Gold is one of the beneficiaries of the weakening US dollar. And as the US markets are also tumbling we can see more money coming into the commodities markets. Even though the demand of these commodities may not be on the rise, investment in the ETFs has definitely seen an increase as people are becoming more aware of ETFs. Gold ETFs are fast becoming a popular alternative asset class to the equity markets," according to Mr Amar Singh, Head Research-Commodities, Angel Broking.

Investors do not see an immediate future in the equity markets due to which people are now shifting to alternatives such as gold ETFs, said Mr N.S. Ramaswamy, Head Commodities, Ventura Securities.

Even though the ETFs are listed on the stock exchanges, they do not feel the pinch of the tanking markets as they are not benchmarked against the equity market index say marketmen.

"Gold ETFs are benchmarked against spot gold price, which are closely followed by the ETFs. That is why we are seeing an increase in the prices of the listed gold ETFs. Gold is a hedge against inflation and it helps in smoothening your portfolios," said Mr Devendra Nevgi, CEO, Quantum AMC.

Mr Shailendra Kumar adds that another reason people turn to gold, as they do not fear of a big correction in gold prices unlike in the financial markets