Gold ETFs shine all over the world, says World Gold Council report

Gold exchange-traded funds (ETFs) attracted net inflows globally for the fifth consecutive month in September 2024, as the US rate cut and rising geopolitical tensions drove investors to seek refuge in safe-haven assets.

Worldwide, the assets under management (AUM) of gold ETFs rose five percent to $271 billion, and collective holdings climbed 18 tonne to 3,200 tonne by the end of September 2024, according to a World Gold Council (WGC) report.

Domestically, barring just two months (March 2023 and April 2024), the Indian gold ETFs registered net inflows over the last 20 months, as per the data published by the Association of Mutual Funds in India (AMFI). It exhibits an increased interest among Indian investors in gold ETFs. As of September 30, 2024, the Indian gold ETFs had an AUM of Rs 39,824 crore.

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Gold ETFs have been an effective vehicle for investors globally wanting to allocate to the yellow metal.

A safe haven during uncertainties

Gold, as an asset class, is used as a hedge against stock market volatility and economic uncertainties. Despite short-term blips, gold prices have been on the rise since October 2022. The yellow metal has delivered a staggering return of 33 percent over the last one year in rupee terms.

In India, gold ETFs are passively managed mutual fund schemes investing in standard gold bullion of 99.5 percent purity. They track the domestic price of gold closely. Currently, there are 17 gold ETFs in the country, with Nippon India ETF Gold BeES, HDFC Gold ETF and SBI Gold ETF being the top three gold ETFs in terms of assets managed.

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North America leads the chart

As per the WGC report, the gold ETFs managed in North American region attracted more inflows during September. The US Fed surprised investors with a cut of 50 basis points at their September meeting, pushing Treasury yields and the dollar down during the month. Lower opportunity costs, related to interest rates and the dollar, boosted investor interest in gold ETFs.

Rising geopolitical tensions in the Middle East during the month also helped attract gold ETF inflows as investors sought a safe haven, the report said.

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However, gold ETFs in the UK registered net outflows in September 2024. The report cited that compared to the US Fed’s easing efforts, the Bank of England (BoE) was more reserved, leaving rates unchanged at five percent at its September meeting, citing the upside risk of inflation from elevated wage growth. The BoE’s cautious move cooled investor expectations of future rate cuts, and fuelled a sizable rebound in UK gilt yields, which coincided with major local gold ETFs’ outflows.

Tepid response in China

India again saw strong inflows, driven by factors driven by continued positive momentum from the Budget announcement in July, the local gold price strength and elevated geopolitical risk, the WGC report said.

Chinese inflows were mild as the equity rally later in the month, fuelled by the government’s aggressive stimulus package, diverted some investor attention away from gold despite its strong performance, the report added.

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