The surge in gold inflows in 2016 is epitomized by the fact that SPDR Gold Shares, the world’s largest bullion exchange-traded fund, attracted US$ 4.55 billion of new money in 2016, the most among all US-listed ETFs. Thanks to the global as well as domestic market momentum, NSE Gold ETFs posted impressive gains.
The scene last year was contrary when investors showed less interest in the yellow metal as the stock markets were offering hefty returns. But this year, Gold has offered the highest return in the current year, in sharp contrast to the rapidly prevailing pessimism in equities and other investment tools with recovery nowhere in sight.
Gold Vs Others
In the international markets price of gold at Commex has shop up 16.45% to US$ 1,234/ t oz in 2016 so far. Buoyed by the global cues and increasing demand as a safe mean of investment, gold price in domestic markets too have surged over 18% to nearly Rs. 29,535 per 10 gm for 24-carat gold, from about Rs. 24,950 per 10 gm on December 31, 2015. The equities, on the other hand, offer negative return with Sensex falling 7.17% in 2016 so far. Similarly, crude oil price have been reeling under pressure with worsening demand-supply equation. Crude oil price has fallen by 8.69% in 2016.
Glittering Gold ETFs Steal the Show
Subdued stock markets have adversely impacted mutual funds. But, Gold Exchange Traded Funds (ETFs) have emerged star performers. As compared to the return of 18% in spot price of 24-carat gold in India, Gold ETFs like Axis Gold and Religare Gold offer a hefty return of 19.47% and 19.10% respectively in 2016 so far.
|Return in Gold ETFs in 2016 so far|
|Birla Sun Life Gold||2390||2714.45||13.57|
Gems & Jewellery Stocks down
Though gold, in a physical form or as an ETF, has been offering impressive return on investment (RoI), barring a few, shares of gems & jewellery companies have disappointed investors big time.
|Performance of Gems & Jewellery stocks in 2016|
|Shrenuj and Co||13.35||11.99||-10.18|
Improved Reserve position
With the gold gaining momentum in the international as well as in Indian markets as a safe investment, India’s gold reserve has also been on the rise. In 2016, India’s total gold reserve has increased 2.47% to Rs. 1,201.20 billion as on week ended February 19, 2016 (US$ 17.96 billion). Similarly, India’s gold reserve position in the International Monetary Fund (IMF) has nearly doubled to US$ 2.59 billion.
With Union Finance Minister Arun Jaitley announced levying 1% excise duty on gems and jewellery in the Union Budget 2016, the sector has been pushed on a backfoot. However, this might not have much impact in the gold prices as the amount of safety it offers is better than equities and commodities, at least at present. Earlier, too, the government had made it mandatory to submit PAN card on purchase of gold more than Rs. 2 lk, but such move of the government also could not restrict buying in gold as safe investment. Amid, increasing volatility in equities, commodities and currencies, gold prices are expected to see further surge.