Gold Exchange Traded Funds (ETFs) have seen significant growth across the globe, according to the latest report by the World Gold Council. Amidst economic uncertainty, geopolitical tensions, and market volatility, gold has again proven its appeal as a safe haven. This growing interest in gold ETFs shows that investors are looking for a safe spot to invest their money amidst the risks in other financial markets.
The global assets under management (AUM) of gold ETFs increased significantly by 5% to $271 billion by the end of September 2024. Additionally, total holdings rose by 18 tonnes to 3,200 tonnes, according to a report published by the World Gold Council (WGC).
Source: Moneycontrol
India’s Growing Appetite for Gold ETFs
In India, gold ETFs have demonstrated consistent popularity among investors. Net inflows have been recorded for a substantial 20 months, with only two exceptions occurring in March 2023 and April 2024. This trend underscores the increasing preference for gold ETFs as an investment vehicle among Indian investors. As of September 30, 2024, Indian gold ETFs recorded an AUM of ₹39,824 crore.
Source: Moneycontrol
Key Findings from the World Gold Council Report
The World Gold Council’s report highlights several trends and insights regarding the performance of gold ETFs worldwide:
- Global Growth in Gold ETF Holdings:
- According to the report, global gold ETF holdings have reached new highs, with strong inflows in North America, Europe, and Asia. These funds saw consistent monthly increases in assets under management (AUM), driven by rising geopolitical risks, inflation concerns, and central bank monetary policy shifts.
- Regional Performances:
- North America: U.S. gold ETFs led the charge, benefitting from both retail and institutional demand as investors sought to hedge against inflation and the weakening U.S. dollar.
- Europe: European investors increased their allocations in gold ETFs, driven by uncertainty over economic stability and ongoing tensions around energy supplies.
- Asia: In Asia, particularly in China and India, gold ETFs witnessed substantial growth due to cultural affinity for gold, combined with rising investment demand in uncertain times.
- Impact of Central Bank Policies:
- The report notes that central banks’ dovish monetary policies, especially in the U.S. and Europe, have bolstered gold prices and, by extension, gold ETFs. As interest rates remain low, gold becomes a more attractive asset for investors looking for alternative stores of value.
What are Gold ETFs?
Gold ETFs are financial instruments that represent ownership of gold. These funds invest in physical gold, allowing investors to gain exposure to gold prices without the need to store or physically hold the metal. Each unit of a Gold ETF is typically backed by one gram of gold or a fraction thereof, making it easier for both retail and institutional investors to access the commodity. Here is a list of some popular gold ETFs that performed well and gave good returns to investors.
List of Gold ETFs with More Than 12% Return
Name | 5 YR CAGR (In %) |
IDBI Gold ETF | 13.57 |
Axis Gold ETF | 13.24 |
Invesco India Gold ETF | 13.22 |
Aditya BSL Gold ETF | 13.18 |
ICICI Prudential Gold ETF | 13.12 |
SBI Gold ETF | 13.11 |
HDFC Gold ETF | 12.89 |
Nippon India ETF Gold | 12.86 |
5 Key Reasons for Gold ETFs’ Popularity
Gold ETFs are increasingly seen as a vital component of an investment portfolio for several reasons:
1. Diversification Benefits:
- Gold is a non-correlated asset, which means its value doesn’t move in the same direction as stocks or bonds. Including gold ETFs in your portfolio can help spread out risk and lower overall volatility.
2. Hedge Against Inflation:
- Gold has traditionally been viewed as a hedge against inflation. In times of rising prices, gold’s value tends to increase. With inflation rates climbing in many parts of the world, investors have flocked to gold ETFs to protect their purchasing power.
3. Safe Haven in Uncertain Times:
- During periods of geopolitical instability or economic downturns, gold’s status as a safe-haven asset attracts more investment. The report highlights how current events, such as tensions in the Middle East and concerns over global economic slowdown, have prompted many to increase their holdings in gold ETFs.
4. Accessibility and Liquidity:
- Gold ETFs provide an easy and cost-effective way for investors to gain exposure to gold without the need for physical storage or security concerns. Unlike physical gold, which may be difficult to sell quickly, gold ETFs offer high liquidity, allowing investors to buy or sell units on stock exchanges easily.
5. Regulatory Framework and Transparency:
- Gold ETFs are regulated and offer a high level of transparency. Investors can easily track their holdings’ value through live market prices and monitor fund performance, making them a reliable investment option.
Performance During Market Volatility
The World Gold Council report emphasizes how gold ETFs have outperformed many other asset classes during market volatility. The COVID-19 pandemic, for instance, led to a surge in gold prices, with gold ETFs benefiting from a flight to safety by global investors. As stock markets experienced sharp declines in early 2020, gold ETFs became one of the top-performing asset classes, providing much-needed stability to portfolios.
Case Study: 2023 Market Performance
The report analyzes gold ETFs during the volatile market conditions of 2023. Key highlights include:
- Sharp Rise in Gold Prices: Global uncertainties, including inflationary pressures, rising energy prices, and fears of a recession, pushed gold prices to multi-year highs.
- Strong Inflows into ETFs: Amid fears of a global economic slowdown, investors poured significant capital into gold ETFs, leading to record-high inflows.
Future Outlook for Gold ETFs
The World Gold Council is optimistic about the future of gold ETFs, citing several factors that may continue to drive demand:
1. Inflation and Economic Uncertainty:
- As inflation remains elevated and global economies face uncertainty, investors are expected to continue seeking safety in gold. Gold ETFs will likely benefit from this prolonged demand for safe-haven assets.
2. Evolving Investment Preferences:
- Younger investors, particularly Millennials and Gen Z, are increasingly interested in gold as an investment. This demographic is increasingly drawn to gold ETFs due to their ease of access, low costs, and transparency.
3. Central Bank Gold Purchases:
- Central banks worldwide are increasing their gold reserves, which further supports the demand for gold ETFs. Countries like China and Russia are particularly keen on boosting their gold holdings as a hedge against the dominance of the U.S. dollar.
4. Digital Gold and Gold ETF Hybrids:
- Innovations in financial products, such as digital gold and hybrid products that combine gold ETFs with blockchain technology, will likely make gold ETFs appeal even more to tech-savvy investors.
Conclusion
Gold ETFs have proven their value in 2023, offering investors a reliable way to safeguard their wealth in uncertain times. The World Gold Council report underscores the global appeal of these financial products, particularly as inflationary pressures and geopolitical tensions continue to weigh on markets. With their ease of access, liquidity, and transparency, gold ETFs are expected to remain a core asset in portfolios worldwide.
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FAQ
Why has the AUM of gold ETFs seen such a significant increase?
The surge in AUM for gold ETFs can be attributed to several factors. First, the U.S. Federal Reserve’s decision to lower interest rates has made gold a good investment option. Second, escalating geopolitical tensions have created a sense of uncertainty and market volatility, prompting investors to seek safe-haven assets like gold. Third, gold ETFs offer a convenient and liquid way to invest in gold without the physical risks associated with owning the metal.
What are the key benefits of investing in gold ETFs?
Investing in gold ETFs offers several advantages. They provide exposure to gold without needing physical storage, making them more accessible and convenient. Gold ETFs are also highly liquid, allowing investors to easily buy and sell their holdings. Additionally, they are professionally managed, ensuring that the underlying gold assets are properly stored and insured. Furthermore, gold ETFs are often traded on major exchanges, providing transparency and price efficiency.
Are there any risks associated with investing in gold ETFs?
While gold ETFs offer several benefits, they also carry some risks. Gold prices can be volatile, and they will not be guaranteed to appreciate. Gold ETFs are also subject to market risk, meaning their prices can fluctuate based on overall market conditions. Investors should consider their risk tolerance and investment goals before investing in gold ETFs.
How do gold ETFs compare to other investment options?
Gold ETFs can be a valuable addition to a diversified investment portfolio. They can help hedge against inflation and market volatility. However, it is important to compare gold ETFs to other investment options, such as stocks, bonds, and real estate. Each asset class has unique characteristics and risks, and investors should carefully consider their circumstances and goals when making investment decisions.
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I’m Archana R. Chettiar, an experienced content creator with
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