Gold exchange-traded funds lose appeal as prices tumble.

MUMBAI: Assets under management of gold exchange-traded funds fell for a third month in a row in June, signalling that investors in the world's biggest consumer of gold are not showering the same affection on paper gold.

Data released by the Association of Mutual Funds in India showed assets under management of gold ETFs at Rs 9,612 crore in June, down 20% from their January peak of Rs 12,057 crore.

Gold ETFs saw a net outflow of 206 crore in June because of profit booking amid concerns of a further decline in gold prices. Analysts say the US Federal Reserve's plan to taper down its quantitative easing programme also contributed to the sell-off in gold funds, adding that gold prices in the near term will remain hostage to incremental positive data from the US.

"The bearish sentiment in gold prices has propelled investors to take money out of gold ETFs," said DP Singh, executive director at SBI Mutual Fund. "However, when it comes to redemptions in gold ETFs, large investors have exited more in comparison to retail investors."

Globally, the prices of gold have tanked nearly 28% to around $1,300 an ounce from a peak of $1,750 in October last year, impacting performance of the metal back home. Domestic prices of gold, however, fell only 18% to Rs 26,500 per 10 gram from a high of Rs 32,460 in November last year.

Analysts say the price-sensitive Indian investors always shy away from the market in times of higher volatility.

The demand for ETFs moves in line with the demand in the physical market. The ongoing slack season and the government's measures to curb gold imports will have an adverse impact on demand, according to some money managers.

"One of the reasons for the fall in AUM of gold ETFs is the mark-to-market losses, as prices of yellow metal crashed sharply in the recent past," said Lakshmi Iyer, head of products and fixed income at Kotak Mutual Fund. "There are no inquiries as such from investors for buying gold ETFs at this point of time."

The government has raised import duty and tightened financing norms to curb gold purchases, a move aimed at containing India's widening current account deficit.

Finance minister P Chidambaram last month appealed to Indian consumers to resist the temptation to buy gold, saying reduced imports may help the government tackle the current account gap and weakness in the rupee. The currency touched a record low of 61.21 to a dollar on July 8.

Source : economictimes.indiatimes.com