Gold ETF inflows stopped: Major fund houses slam brakes ahead of festive season buying

Major mutual fund houses including HDFC Mutual Fund, ICICI Prudential Asset Management Company, and Tata Mutual Fund have halted fresh investments in their gold fund-of-funds (FoFs) just ahead of the festive season, according to a report by The Economic Times.

The notices issued by the fund houses outline temporary restrictions covering fresh and additional lump-sum investments, switch-ins, top-ups, and new registrations for systematic investment plans (SIPs) and systematic transfer plans (STPs).

However, existing investors retain the ability to redeem their investments, and registered SIP and STP instalments set up prior to the effective date will continue to be processed at the applicable net asset value (NAV).

Indian Bullion and Jewellers Association (IBJA) president Surendra Mehta told ET that the restrictions may have been introduced to avoid a heavy rush into gold FoFs during the festive season, mirroring trends seen last year.

Industry sources also noted that the development follows regulatory attention, with the Reserve Bank of India (RBI) sending a document regarding the matter to the Securities and Exchange Board of India (SEBI) for consideration.

As the world's second-largest gold consumer after China, India relies heavily on imports, which typically surge during the festive period around Dhanteras and Diwali. However, recent trade data highlights a distinct cooling off in physical arrivals. Gold imports fell sharply to $1.8 billion in September, down from $2.3 billion in August.

Inflows into gold and silver ETFs surged during last year's festive season as investors actively turned to precious metals amidst lackluster returns in the equity markets.

$31 billion gold ETF inflows in Q3: WGC

Global momentum behind gold-backed ETFs accelerated sharply in the third quarter, driven by robust institutional and retail appetite across key western and Asian markets. The World Gold Council (WGC) in its latest monthly ETF report pointed out that 67.3 tonnes of gold, valued at nearly $10 billion, flowed into global ETFs last month alone.

WGC analysts noted that September’s strong performance lifted total third-quarter inflows to a record $31 billion, with European- and North American-listed funds driving the bulk of demand.

“During Q3, global gold ETFs’ total AUM rose 9%, while collective holdings grew by 211t. At the country level, the record Q3 inflow was led by the US, followed by an impressive contribution from UK-listed funds. The UK recorded its strongest quarter on record, helping Europe achieve the same milestone at the regional level,” the analysts said.

Asian markets continued to demonstrate consistent structural demand throughout September, recording a third consecutive month of positive net inflows. China led regional investment into gold-backed ETFs, while India, Japan, South Korea, and Singapore all recorded positive monthly inflows, underscoring the widespread geographical strength of demand across the region.

Market participants expect fixed-income trends to remain a critical macro driver for precious metals. WGC analysts highlighted that US 10-year Treasury yields remain elevated above 5%, even as global financial markets price in only a slim probability of an interest rate hike later this month.