Gold ETFs stage comeback with ₹292-crore inflow in May

After a two-month outflow, Gold Exchange Traded Funds (ETFs) experienced a net inflow of ₹292 crore in May driven by resilient gold prices and sustained global uncertainties.

Going by the data, Gold ETFs witnessed an inflow to the tune of ₹292 crore last month, marking an improvement from the outflow of ₹6 crore in April and ₹77 crore in March.

"The renewed traction in May signals a gradual return of investor interest, likely driven by resilient gold prices and sustained global uncertainties that reinforce gold's appeal as a strategic hedge," Nehal Meshram, Senior Analyst – Manager Research at Morningstar Investment Research India, said.

Furthermore, the relative stability in gold prices through May has provided a more attractive entry point for investors looking to build or rebalance allocations toward safer assets, she added.

Also, investors are now realising the need to have gold as a part of their portfolio, and therefore, the buying has begun, Santosh Joseph, CEO of Germinate Investor Services, said.

"Apart from the dip and...asset allocation, there is generally a tendency to stay in dollar assets, which are different from equities, and therefore, gold is a unique asset class which is dollar-denominated but not equity-connected. It's got a negative correlation to equities, and therefore, it forms a perfect hedge to one's portfolio. So it's a combination of things that led to inflow," he added.

While inflows are yet to reach the levels seen earlier in the year, the trend suggests a gradual and measured return of interest in gold, underpinned by its long-term diversification benefits.

Gold, with its superlative performance over the last few years, has garnered substantial investor interest and the consistent increase in folio numbers serves as a testament to its attractiveness.

The folio numbers in gold ETFs rose by 2.24 lakh to 73.69 lakh in the month under review from 71.45 lakh in April. This indicates a growing inclination among investors towards funds related to gold.

Gold ETFs, which aim to track the domestic physical gold price, are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form.

One gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. They combine the flexibility of stock investments and the simplicity of gold investments.