ETF Report

ETF Report

Buy Gold this Diwali

Buying gold during Diwali is considered auspicious. But is it only superstition or has the ‘yellow' metal really brought riches for its buyers? Well, investors who bet on gold for capital appreciation have made money, if the trend in the last five years is anything to go by. The price of gold has gone up from Rs 875/gm during Diwali 2006 to around Rs 1,968/gm now, appreciating at about 22 per cent annually on a compounded basis over the last four years.

World Gold Council celebrates Akshaya Tritiya

Speaking on the occasion Ajay Mitra, Managing Director - Indian Sub-Continent, World Gold Council said, "World Gold Council has been at the forefront for the uptake of gold in India and defining that gold is not only a sound investment but also an attractive ornament for women. Gold has tremendous significance in the context of India’s festivals, culture and traditions. Gold best represents prosperity and is welcomed and brought into the house just as lakshmi, the goddess of wealth is welcomed into homes for luck and prosperity. As Akshaya Tritiya is an auspicious time for prosperity and new beginnings, it’s an apt time to buy, wear and celebrate gold."


Speaking on the occasion Ajay Mitra, Managing Director - Indian Sub-Continent, World Gold Council said, "World Gold Council has been at the forefront for the uptake of gold in India and defining that gold is not only a sound investment but also an attractive ornament for women. Gold has tremendous significance in the context of India’s festivals, culture and traditions. Gold best represents prosperity and is welcomed and brought into the house just as lakshmi, the goddess of wealth is welcomed into homes for luck and prosperity. As Akshaya Tritiya is an auspicious time for prosperity and new beginnings, it’s an apt time to buy, wear and celebrate gold."


Over the years, Akshaya Tritiya has gained prominence as one of the most important festivals in India. It has moved from being only a South-specific festival to one that is enjoyed in all regions of India. A number of jewellery stores in the South are undertaking various promotions, such as Joy Alukkas who are offering 5 gold coins of 200gms each with every purchase of gold worth one lakh rupees. Similarly, Malabar Gold jewelers are offering a free gold coin with every purchase of 20gms of gold jewellery. Prince jewelers are offering Rs 600 off per sovereign on gold jewellery and no making charges on plain gold jewellery. GRT jewelers have an offer of Rs 45 less per gram.

Across the country, gold retailers will be running gold jewellery shopping festivals, jewellery Mahotsavs as well as launching new gold jewellery designs and collections to commemorate the occasion of gold buying and wearing on the occasion of Akshaya Tritiya. These include PNG in Pune that has a Mangalsutra Mahotsav which will conclude on Akshay Tritiya, Senco Gold in Kolkata has a bangle festival where there are 24 designs being promoted across their 21 outlets in Kolkata and West Bengal. There is also a Bengal Gold Festival for a month starting 2 days before Akshay Tritiya where consumers will get a chance to win one lakh worth of gold if they purchase gold from participating outlets. Similarly there are promotions in Mumbai at leading retailers such as TBZ-The Original and Waman Hari Pethe Jewellers and in Delhi at Hazoorilal Jewellers and Khanna Jewellers.


World Gold Council has initiated a vibrant POS exercise across 2200 outlets across Mumbai, Delhi, Pune, Ahmedabad, Surat and Nagpur in multiple languages. This initiative is to bring forth the Akshaye Tritiya messaging and relevance to the consumers and adorn every outlet to add to the festive zest and vigour.

Together with India Post, World Gold Council has launched a new gold medallion especially for the Akshaya Tritiya festive season. Consumers can avail a 6% discount on purchase of these medallions during the Akshaya Tritiya period.

Gold ETFs emerge as best performers

If you are one of those who invested in gold exchange traded funds
(GETFs) a year ago, the yellow metal has not only turned out to be a great asset protector but also a solid wealth generator. GETFs have given a stellar 28% gains in the last 12 months when the other 26 fund categories — debt, equity and hybrid — have struggled to break the average 20% mark.

What's made gold ETFs more safer is that all of them have same returns (since all the ETFs are tracking the same commodity), while there is huge divergence in the other fund categories — sometimes as high as 40-50 % between the best and worst schemes.

With gold as an asset coming into limelight as the world went into a slump, ETFs tracking metal price rose in tandem as stocks fell.


The gains logged by gold ETFs come in a period when equity funds focussed on banking and FMCG have delivered around 18-19 % returns, GILT (medium and long-term ) schemes have given 13% returns , monthly income plans posted 12% gains and sensex rose 9%, data from fund tracker ValueResearch shows.

Currently there are five gold ETFs such as Gold Benchmark ETF, Kotak Gold ETF, Quantum Gold, Reliance Gold ETF and UTI Gold ETF with more than 1 year history . SBI MF launched its Gold ETF in April this year. With Chinese consumers buying gold aggressively, coupled with onset of the festive season in India, experts predict gold prices will rise further.

"For the last 15 years, dollar has depreciated while gold prices have inched up. For the record, gold has delivered 16-17 % compounded annual growth rate (CAGR) for the past 9 years. If high crude prices continue to push inflation , making gold more attractive as an inflation hedge," Amar Shah, Head of Research (Commodities), Angel Broking, said.

Gold prices in New Delhi market currently trade around Rs 15,200 per 10 grams. Investors have clearly identified gold as a part of their asset allocation strategy , feels Krishnan Sitaraman, director — Crisil FundServices . "Gold's allure lies in the fact that it has proven its mettle during down times.

via ET

Gold ETFs a good option

Gold ETFs are an interesting option for the investor. Tips on when you should jump onto the bangwagon.

Gold exchange traded funds (ETF) have recently started making their mark in the Indian mutual fund space. With their rising popularity, a lot of fund houses are introducing schemes in the market to cater to the needs of the customer.

In all this excitement there is one factor that is often forgotten: when should you look to invest in such schemes? We provide you with some help on how to go about taking this crucial decision.

Expecting appreciation
The basic tenet of investing is that one does expect appreciation in the short-term or the long-term. Also, it is completely dependent on the perspective or investment horizon of the individual per se. The same principle should be working for gold ETFs as well because any investor would like to invest only when he expects an appreciation in the value of the fund.

The gold ETF works on the principle that the value of the fund is linked to the gold prices. This implies that the investor will gain only when the prices of gold rise from the level at which they have bought the units. This is inherently built into the investor's expectations while investing, and the investment will be made only when he thinks gold prices are low or there is scope of appreciation.

Convenient amount
The second reason why an investor would want to use a gold ETF is because the investment can be made in a convenient amount. For instance, Rs 10,569 per 10 grams does sound like an inconvenient number to buy. On the other hand, Rs 2,000 for 10 units does sound quite comfortable.

There are some basic weights in which normal gold purchases are possible and for this very reason, the investor might have to shell out a particular amount depending upon the price of gold. This does not happen when the investor uses the gold ETF route for the purpose of investing such amounts because smaller amounts can still be invested whenever required through the purchase.

Specific condition benefit
Of course, there can be situations where one bets that international gold prices would rise. An investor who is able to spot this opportunity can take the decision to invest. In the past four years, we have seen many situations of global economic and political turmoil, when investors have shunned stocks and moved towards gold as an investment as it provides stability.

Sharp movement
Then there are opportunities when one can expect a sharp upward movement in the price of gold and this can become an opportunity for the investor. This window of opportunity often does not remain for a long time period. So, only those who move quickly will be able to gain from the situation. It is under such conditions that the investor will be able to use the gold ETF in an effective manner. Unlike other mutual funds, there is also a chance of using the intra-day volatility in prices because the investor can buy or sell the units at any time during the day. Due to this reason the investor will be able to ensure that they are able to get the best benefit of volatility.

Via Business Standard

Gold at 16 month high

Gold edged up today and held within sight of a 16-month high hit last week as its status as a safe investment came under the spotlight amid a sell-off in stocks, but a firmer yen put pressure on Tokyo futures.

Spot gold was at $700.50/701.30 an ounce as of 0307 GMT, edging up from $699.90/700.70 late in New York on Friday, when it rallied to its highest since mid-May 2006 at $707.10.

Capital inflows continued into gold-backed exchange traded funds (ETFs) listed overseas despite a slump on Wall Street after surprisingly bleak US jobs data, underlining investor confidence in bullion.

Analysts said the data worsened prospects for the dollar and encouraged bullion buying. A lower dollar makes gold, which is denominated in the U.S. currency, cheaper for investors holding the euro and other foreign currencies.
“Investors are getting more confident that bullion has hit a floor and is on the way back up,” said Yuki Sonoda, advisor at Daiichi Commodities Co Ltd.
“Finally, a gleam is in sight,” he said, adding that an increased amount of gold held by

ETFs showed steady appetite for gold by pension funds and other long-term investors.
The latest data showed gold held in New York-listed StreetTRACKS Gold Shares NYS, the world’s largest gold-backed ETF, rose to 549.42 tonnes, another record high, up 33.98 tonnes or 6.6 percent from the start of the month.

But yen-denominated gold futures on the Tokyo Commodity Exchange came under pressure from a weakening dollar versus the yen.

A higher yen deflates yen-based gold futures, encouraging domestic players who had bought to unwind long positions.

The benchmark August 2008 gold futures fell 19 yen per gram, or 0.7 percent, to 2,574 yen.

The dollar slid to a 15-year low against a basket of major currencies on Monday as Friday’s data showing companies cut 4,000 jobs last month, the first such decline since August 2003, prompted investors to expect a hefty Federal Reserve rate cut next week to protect the economy from the housing market crisis.

Against the yen, it fell 0.4 percent from late U.S. trade to 112.95 yen sliding back towards a 14-month low of 111.60 yen. The euro edged up to $1.3775 jumping back near a high of $1.3853 hit in July -- the highest since the single currency was first launched in 1999.

Platinum rose to $1,292.50/1,297.50 an ounce from $1,286.10/1,293.10 late in New York. It hit an intraday high of $1,295 an ounce on Monday -- its highest in five weeks.

The market received support from news on Friday that a South African labour union had called off a strike by some 1,500 workers at a smelter and two refining operation of Anglo Platinum , the world’s biggest platinum producer.

Palladium inched up to $333/338 an ounce from $332.50/336.70 an ounce.
Silver inched down to $12.50/12.54 ounce from $12.51/12.54 an ounce late in New York on Friday, when it rose to its highest in more than three weeks at $12.67. Precious metals prices at 0322 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 700.40 0.20 +0.03 10.18 Spot Silver 12.50 -0.10 -0.79 -2.72 Spot Platinum 1292.50 3.00 +0.23 14.18 Spot Palladium 333.00 -1.30 -0.39 0.30 TOCOM Gold 2574.00 -19.00 -0.73 5.28 56423 TOCOM Platinum 4694.00 -46.00 -0.97 10.34 16455 TOCOM Silver 457.40 -4.90 -1.06 -7.28 1111 TOCOM Palladium 1240.00 -23.00 -1.82 -1.20 109 Euro/Dollar 1.3769 Dollar/Yen 112.95 TOCOM prices in yen per gram, except for silver which is in yen per 10 grams, spot prices in $ per ounce.

Via Mint

In India, metal gold wins out over paper

India, the world's top gold consumer, has barely scratched the surface for exchange traded funds (ETFs) and it will be a long haul to tempt buyers clinging to jewellery to switch to rules-ridden paper gold.

Though the country consumes 800 tonnes a year -- nearly a fifth of the world's annual gold supply -- in jewellery and physical metal, the funds have attracted investments of less than five tonnes since their listings three months ago.

In contrast, an ETF launched in the United States in 2004 attracted investment equal to eight tonnes of gold on the first day and more than 100 tonnes in about a week. Global gold funds now collectively hold more gold than the Chinese central bank, the world's tenth-largest holder with 600 tonnes.

Analysts said bad timing and rigid government rules were equally to blame for not winning over more Indian investors.

"It has been launched at the wrong time when gold prices have started dipping. People are sitting with surplus cash, but the volatility has kept investors away," said Mumbai-based Gnanasekhar Thiagarajan, director of Commtrendz Risk Management.

"Vibrant equity markets have also kept investors away from gold exchange traded funds (ETFs)," he said.

The Bombay Stock Exchange's main index surged 47 percent in 2006 and another five percent this year. Gold rose 24 percent in 2006 but is only up 1.6 percent so far this year.

Spot gold prices fell to a three-month low of $638.90 an ounce on Wednesday and were at $645.75/646.35 by 1003 GMT. That compares with gold's 11-month high of $696.30 in April and a 26-year peak of $730 in May last year.

Analysts said investment in Indian gold ETFs was a sure bet, provided investors were willing to hang on for a longer period and shed their desire to buy it physically. The interest was being stymied by lack of aggressive marketing.

"The awareness of this type of investment vehicle is still low. Also, if the ETFs have to reach the rural public, the account opening procedures and documents should be kept simple," said S.I. Kannan, analyst with Kotak Commodities.

Mandatory requirements for an income tax identification number made the system difficult for illiterate farmers who buy gold. Rules that prevent commodity firms from giving price guidance were also hampering growth, analysts said.

COMPLICATED STRUCTURE

Analysts said that other issues such as restricting trading in ETFs to Indian stock trading hours prevented investors from taking guidance from global price trends, especially from gold futures in the United States.

Stuart Thomas, managing director of U.S.-based World Gold Trust Service, said the poor response was also a result of the structure of the Indian products.

"With the market size of India, with growth in India, with the affinity for gold, I would call those products sub-optimal," said Thomas, who heads the firm that has launched StreetTRACKS gold ETF , which accounts for 75 percent of gold accumulated by global ETFs.

"It's really a structural issue more than anything else. I think with the right product in that market with the right structure, you have got the massive offtake there," he said.

Analysts said the design of the products -- only in local currency, controls on imports and exports of gold bars, limitations on the foreign exchange trade and several rules imposed by the equities market regulator -- scared investors.

"What has prevented us from really doing something in India is that the current regulations are not favourable for us to roll out our products the way we think they should be," said Pierre Lassonde, chairman of industry-funded World Gold Council, which has sponsored and promoted several gold ETFs in the world.

"It doesn't give the buyer the protection, it doesn't give the buyer the fungibility that we have in other products."

Only about a dozen authorised banks and government trading houses are allowed to import and sell gold in India. Shipments of gold bars are banned, but gold jewellery can be exported.

SPONSORS HOPEFUL

But promoters of Indian ETFs, UTI Asset Management and Benchmark Asset Management, remain optimistic following a pick up in trading, though volumes were still small.

"We have about 10 kg of gold, or 10,000 units being traded every day on the exchange," said Swati Kulkarni, vice-president of UTI Asset Management. "In May, 5,000 units were being traded. In two years, I would think it will be a popular product."

Rajan, Mehta, managing director of Benchmark, which launched the first gold ETF in March, said its growth had been steady.

"It is a cultural shift and it takes time."

Via Reuters

Gold ETF - BeEs

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