Gold ETFs, worst-performing assets in last one year

In the last one year gold, represented by Gold Exchange Traded Funds (which track the underlying price of gold), has been the worst performing asset class compared to its peers. While large cap diversified equity funds returned 13 per cent over the last one year, mid and small cap funds did even better returning 33 per cent.

On the debt side, long term gilt and income funds returned 11 per cent, over the last one year period compared to - 11 per cent returned by gold. The underperformance resonates for the last 3 year and 5 year period also, where gold returned -6.5 per cent and 5 per cent.

Many investors are surprised with the fall of the yellow metal from a high of Rs 32,000 per 10 grams in 2013 to Rs 25,000 levels. According to experts there are several reasons for this fall.

According to Naveen Mathur, Associate Director - Commodities & Currencies at Angel Broking, the fall can be attributed to the expectation of a rise in US interest. This would in turn increase yields of US government bonds, making them more attractive and reducing the demand for low yielding asset like gold. Further, gold shares an inverse relation with the dollar given its denomination in US Dollars. Hence, any positive economic news out of the US will buoy the dollar, pulling the yellow metal lower and vice-versa.

Just to get a perspective, between June 2014 and April 1 this year, the US Dollar index rose 23 per cent to 97.86, hence dragging down the price of gold. Apart from this, Greece debt crisis, which was a cushion for gold prices for some time, has been resolved, thereby severely hurting the safe haven appeal of the yellow metal.

"In addition, risk assets have started doing well, owing to the large amount of liquidity infused by global central banks", says Chirag Mehta, Fund Manager Commodities, Quantum AMC. Having said that, gold warrants an allocation of 10 per cent 20 per cent in one's portfolio and investors can consider gradually buying into the metal.

According to Mathur, retail investors may wait for 6 months to buy at attractive levels of Rs 24000/23500 per 10gs. He is of the view that 2015 is likely to mark the end of the bear market. The last few months of the year may see a modest recovery, with more meaningful gains likely in 2016. If you are looking at gold as an investment and not for consumption, consider investing into Exchange Traded Funds (ETFs) as it is the most efficient form of buying gold. There are no heavy premiums attached to its price or any making charges.

(In Association with Mail Today)