Coronavirus impact: Gold ETFs now hold more precious metal than most central banks

Gold exchange traded funds (ETFs) witnessed surge in inflow in the first six months of this year as new investors rushed to add the precious metal in their portfolios amid coronavirus pandemic. Gold ETF saw net inflows of over Rs 3,500 crore in January-June period of this year as investors continued to hedge their exposure to riskier assets amid the COVID-19 crisis. In comparison, investors had pulled out Rs 160 crore from this asset class in January-June 2019, as per the latest data available with the Association of Mutual Funds in India (Amfi).

Exchange-traded funds backed by physical gold and silver now hold more than $50 billion of bullion this year, which is more than gold reserve accumulated by any central bank, barring that of the US Federal Reserve, as per Bloomberg report.

The United States holds the largest stockpile of gold reserves in the world, amounting to 8,133 tonnes valued at around $373 billion. The Reserve Bank of India's (RBI) total gold reserves stood at around $39.785 billion as of August 7, 2020.

Gold ETFs witnessed an inflow of around Rs 3,723 crore between August 2019 to June 2020. In July, gold ETFs reported an inflow of Rs 921 crore, a sharp jump of 86 per cent from the preceding month, as the coronavirus outbreak spurred safe-haven buying. The inflows meant assets under management (AUM) of gold ETFs rose by 19 per cent to Rs 12,941 crore at the end of July, from Rs 10,857 crore at June-end.

In the financial year 2019-20, investors infused over Rs 1,600 crore in gold ETFs after pumping out money for the last six financial years. The safe haven asset had witnessed net outflows of Rs 835 crore in 2017-18, Rs 775 crore in 2016-17, Rs 903 crore in 2015-16, Rs 1,475 crore in 2014-15 and Rs 2,293 crore in 2013-14.

In the last few years, retail investors invested more money into equities as compared to gold ETFs, mainly on account of decent returns. However, gold, which is considered as safe heaven asset, has emerged as one of the better performing asset class since 2019 and this 2020 so far.

Gold-backed ETFs are passive investment instruments that are based on price movements and investments in physical gold. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity, which may be in paper or dematerialised form.

By Chitranjan Kumar with PTI inputs

Also Read: Gold price discount in India soars to over a month's high

Also Read: Gold may become cheaper, slumps over Rs 4,000 per 10 gram from this month's high