Sanjiv Shah, co-chief executive officer, Goldman Sachs AMC expects more investor to park funds in gold ETFs than physical gold. He feels the recently enforced Know Your Customer (KYC) norms for retail purchase of gold will drive people towards gold ETFs.
"People will now switch from buying gold coins to buying gold ETFs. Rather than buying gold coins and getting worried about the KYC, they might as well buy ETFs," he said in an interview to CNBC-TV18.
Also, buying and selling of physical gold leads to loss of value, which is not the case with gold ETFs, he added.
According to him, the gold deposit scheme, which aims to give higher returns will also play an important role to boost investments in gold ETFs.
Below is the edited transcript of Shah's interview to CNBC-TV18.
Q: Do you think gold is going to see perhaps more lows? Or is it stabilising around USD 1,600 per ounce?
A: According to news reports, one of the large investor is selling out and people are taking some kind of bearish views on that. Obviously, the market thinks that the gold prices have reached a point where most of the investments, that had to happen, have happen. We do not know what happens in European Union (EU), Cyprus. Those uncertainties make a case for people to still invest in gold. Hints suggest that the demand has tapered off little but not necessarily for a long period of time.
Q: So it would stabilise around USD 1,550 per ounce to USD 1,600 per ounce?
A: I do not have a price target as such but people are thinking that maybe this is a time where people might just come in, in the next few months.
Q: Anyone would be nervous after the big billionaire investor George Soros starts liquidating his positions in gold, so you try to replicate that perhaps. In 2013 itself, what are your views on the demand for gold Exchange Traded Funds (ETFs)?
A: Whenever people want to buy gold, they look at ETFs as a nice place to invest in. There are two-three reasons for that. Firstly, with the know-your-client (KYC) norms, people will float from buying gold coins to buying gold ETFs. People will think that rather than buying gold coins and getting worried about the KYC, they might as well buy ETFs.
Secondly, people have known that when one buys and sells gold, they do lose out a lot of value, to the tune of 10-15 percent. Hence, more people are coming into gold ETFs.
Thirdly, thanks to the gold deposit scheme where the gold ETFs can now be invested, now there will be more returns in gold. So, if you are investing in gold too, you might be able to get some more returns than normal.
These are the two-three reasons we think gold ETFs itself -will attract more and more investors coming apart from the escalating gold prices.
Q: How has been the trend in the last six-eight months compared to the six months ago period or the year ago period? This is the first time gold ETF investor would have seen returns fall perhaps even his capital fall? So has the reaction already set in in terms of at least the interest waning or have there been redemptions?
A: There have not been any redemptions of any consequence. However, investors lost. The net asset value (NAV) came down in 2007-2008. Even then, we observed that when the NAV comes down, more people come in and invest.
Q: How has been the trend in the last six-eight months compared to the six months ago period or the year ago period? I asked because this is the first time gold ETF investor would have seen returns fall perhaps even his capital fall? So has the reaction already set in in terms of at least the interest waning or have there been redemptions?
A: There have not been any redemptions of any consequence. But in the past one year investors have lost in the gold ETF market. The net asset value (NAV) came down in 2007-2008. So, even then we observed that when the NAV comes down, more people come in and invest.
Q: That is the experience in the last 12 months?
A: Yes. In the last one year, we have seen new accretions to the fund rather than any depletion. So, that trend continues.
Q: What is the pace of the increase of the assets under management (AUMs) of any one fund or all the funds that you manage? Did the pace of accretion fall?
A: I do not have the exact data on it but yes, in the last two-three months, the growth rate was not as high as it was in the last six months. But that is something that is cyclical. Even if one looks at gold investments, they typically get bunched up during festival times. That is how India works. So, that is more natural in terms of how Indians invest in gold.
Q: In terms of both physical gold as well as gold ETFs, do you think this is a good time to put in money or do you think one could get better levels because we are seeing quite a bit of redemptions in gold ETFs at this point as well?
A: I do not have any price targets as such. The movement is not any more also from the fact that people are buying gold ETFs for just investments. People who are buying physical gold as such are moving into gold ETFs. Indians, typically buy gold irrespective of the price. Indians buy this because it is a nice asset class to diversify. And whether it is affecting the current account deficit (CAD) is a different issue by itself. We are trying to mitigate it by getting into gold deposit schemes. However, Indians do buy it and our sense is that if they are buying it, then it is better to buy gold ETF than buying physical gold.
Q: Are you trying to say that there is no ennui that has set in at all because anecdotally there are investors who have told me that their money is not growing. The despondency is there when you speak to people, but how much of it translates in terms of - systematic investment plan (SIP) not being continued. There may be new investors, assets under management (AUM) is not perhaps the only measure of existing investor.
A: We have seen more people buying and the same investors buying more gold. Now that might be through because they are doing a kind of quasi SIP. So, the ennui has not come in. I do not want to overemphasise the fact that people are not buying. The reality is that Indians are buying gold and that has not changed.