Gold ETFs and gold funds have had a good start since the beginning of 2016. When the world equity markets are in trouble gold has come out as a knight in shining armor for Gold ETF investors
According to Value Research data, gold funds have delivered 4% and 16% in the last one month and three month periods respectively. The Nifty is up by just 4% in the last three months.
Many call gold as an inflation hedge; in fact it has an inverse correlation with the markets. This is because gold is the de-facto commodity as there is limited supply and at one point global currencies were backed by gold. There is also a belief that if a currency was to collapse there would be a rush to return to the gold standard, which may spur some investors to invest in gold, particularly during tough times.
While many maintain that gold might be a safe bet, it might not be able to provide double-digit returns like equities.
Vinod Jain, MD of Jain Investments says, “We are not advising our clients to invest in gold funds currently as we feel that equities will outperform in the long run. While gold is a hedge against inflation we don’t expect inflation to rise for the next few years.”
Fund managers say that any correction in gold can be a buying opportunity for investors. Chirag Mehta, Senior Fund Manager, Quantum AMC feels that investors should invest in gold for diversification as it is a great tool for hedging, especially in times of volatility. “Investors run from equity to gold until the markets stabilizes. There will be some correction in gold in the near term which can be used as a buying opportunity.”
While the net inflows in Gold ETFs have been negative lately, the uptick in gold prices has helped gold fund AUM increase by 15% from Rs. 5,773 crore to Rs. 6,672 crore in February due to mark to market gains.
Are you recommending your investors to invest in gold at this juncture?
