Declining equity markets and bleak global growth scenario has led investors to seek refuge in the yellow metal as was evident from Friday's trading in Gold Exchange Traded Funds.
ETFs are instruments that trade like shares and are backed by physical holdings of the commodity.
ETF trading volumes on the BSE were much higher than the two-week average. However, the value of the gold ETF units declined, except in the case of ICICI Prudential gold ETF, largely due to profit booking.
“The correction in gold prices is being looked at as a buying opportunity by the investors. However, there is some amount of profit booking as investors who have held on to the units for long felt that it might slip further,” said Mr. Alok Singh, Head — Fixed Income and Structured Products, BNP Paribas Mutual Fund.
On Friday, gold price hit a one-month low of $1719.29 a ounce.
“In the last bull-run, gold had gone up to $1,920 (a ounce) levels. Now that it has fallen by about $200, investor interest seems to be coming back,” said Ms Lakshmi Iyer, Head of Products and Fixed Income, Kotak Mutual Fund.
Gold declined below $1,700 an ounce on Friday and headed for the biggest weekly drop since 2008 as some investors sold the metal to cover losses in other assets.
The last one year has seen gold prices in India rally by about 45 per cent from Rs 18,000 (10 gms) levels to Rs 27,000 (10 gms) levels. During the same period, gold ETFs have seen their AUMs shoot up by 187 per cent. While valuations have been instrumental in pushing up AUMs, there have been net inflows into the funds as well.
According to AMFI data, gold ETFs saw net inflows of Rs 774 crore between August 2010 and August 2011. “Valuations have added to the AUM increase but there has also been a substantial jump in fresh purchases. There is renewed buying interest in this category. Gold fund of funds are seeing good traction,” said Ms Iyer.