Indians have always had a rush for gold, which only gets stronger during Dhanteras, as they consider buying the yellow metal on Diwali day auspicious. The glitter of the physical gold apart, even products such as gold ETFs, gold mutual funds and sovereign gold bonds (SGBs) are shining bright these days, each with its own pros and cons.

Among them, gold ETFs seem to be the most popular, not just with the younger population. The assets under management of gold ETFs stood at ₹26,163 crore at the end of October 2023, a rise from ₹19,882 crore in October 2022 and ₹9,894 crore in October 2013. The net flow into gold ETFs in October rose ₹841 crore as against ₹175 crore in September, according to the Association of Mutual Funds in India.

The jump in investments can be attributed to several factors such as inflation hedge, global uncertainty, Fed monetary policy, and currency depreciation, among others.

Returns for investors

Gold performs well during inflation, attracting investors seeking protection. Gold, a safe-haven asset, stands to gain during economic uncertainty or geopolitical tensions and thrives in a low-interest-rate environment. Prices of the precious metal rise with a weakening dollar, attracting investors seeking currency protection.

A recent report from wealth management platform smallcase said gold has, on an average, given 11.2 per cent returns in the last 20 years and that demand for the yellow metal is likely to remain robust this festival season. The report added that gold has shown a consistent positive performance over the last 20 years, with negative returns observed in only three years — 2013, 2015, and 2021. In the last five years (2018-22), though the outcome was mixed, it generally maintained a positive trend.

Underlying gold price needs to stay above $1,850/ounce in the coming months for the longer-term trend to remain higher, which will give better prospects for gold ETFs, said Jateen Trivedi, Vice-President and Research Analyst at LKP Securities. “Also, supply-demand dynamics, changes in physical demand pattern or mining output can influence gold ETFs,” he added.

Bhavik Patel, Senior Research Analyst at Tradebulls Securities, is optimistic about the outlook for gold this Samvat 2080. “We expect inflows in gold ETFs. It has been mostly outflows this year for gold ETFs and we might see reversal in trend, going forward,” he said. Anand James, Chief Market Strategist at Geojit Financial Services, too, echoed the same sentiment and said technical charts point to a cup and handle pattern in Gold ETF, signalling a strong upmove this Samvat.

Buoyed by the success of gold ETFs, silver ETF has recently been added as an investment option. Currently, the ETF has been doing well as silver underlying has given good upside. “Since the low of August 2022, the domestic price is up more than 40 per cent. And the upcoming trend in silver staying higher shall keep the ETF in demand,” said Trivedi.

However, Patel was cautious and said gold ETFs still remain a preferred choice for investors mainly because of attraction and love for the metal and also gold has gained more compared with the white metal. “We believe once silver becomes attractive compared with gold, investors will start leaning more towards silver ETFs.”

Gold vs Nifty

According to Gopal Kavalireddi, Vice-President of Research at FYERS, the most commonly preferred securities are Nifty and gold ETFs as they are easy, very liquid and widely tracked among market participants. “Over the last year, Nippon India Gold BeES has delivered close to 16 per cent returns in comparison to Nippon India Nifty BeES at 8.2 per cent. Diversification across asset classes reduces the risk and volatility of any single asset while providing better returns over a particular period,” he said.

“And, gold in the form of ETFs has its own peculiarities. To the end that it is an exchange traded product that can be handled very much like an equity, Gold ETFs could be compared to equities. And, to the end that Gold ETF is also seen as a hedge against risk and inflation, one could bring in bonds for comparison,” said James of Geojit Financial Services.

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