August 2011 sees gold ETFs in India record their highest ever monthly average return. Gold will continue to be a ‘safe haven’ in this global economic chaos
In the month of August 2011, Indian Gold ETFs recorded their highest ever monthly average return of 15.2%, which is the highest since their inception in early 2007 following global and domestic economic turmoil. The August returns have toppled the previous return of 14.2% which was delivered by the category in the month of September 2008 amid the financial crisis.
The month saw sharp correction across various asset classes led by US economy downgrade and Euro-zone debt crisis which raised serious worries of global recession.
Moreover, India’s accelerating inflation led to a series of rate hikes by the RBI which in turn has impacted the industrial growth and investment cycle.
Investors shifted their wealth towards gold to hedge their risk since it is considered to be a ‘safe haven’ in crisis and a natural hedge against inflation. Late August, the yellow metal price touched a historic high of above US $ 1,911 before shedding some gains and closing the month with a gain of 11.4% (London Spot Gold price).
According to World Gold Council, the demand for jewelry has actually declined by 18% since 2004 although the demand for gold especially coins and bars have more than doubled since 2009. These facts indicate that investors prefer holding more liquid forms of gold so that it can be sold easily. This suggests that gold price trend is a result of higher demand.
Central banks and pension funds too are looking to increase their gold exposure. Therefore, we can expect gold to continue being a ‘safe haven’ till the global economies settle down.
