LM:Gold ETF assets in India drop for third month as prices fall
Mumbai: The value of assets in gold-backed funds in India, the world’s biggest consumer, fell for a third month in June as a bear market in bullion deepened.
Holdings in exchange-traded funds, or ETFs, declined 9.2% to Rs9, 610 crore ($1.6 billion) as of 30 June from a month earlier, the Association of Mutual Funds in India said on its website, without giving data on volume.
The value of assets has lost 20% since reaching a record Rs12,060 crore in January, association data showed. Gold fell 4.5% in rupee terms in June, falling for a 10th month.
Global gold-backed exchange-traded products have fallen below 2,000 metric tons for the first time since May 2010 after bullion slumped on expectations the US Federal Reserve will reduce stimulus measures. Gold in dollars slid 23% last quarter, the biggest loss since at least 1920, as some investors lost faith in the metal as a store of value on signs of an improving US economy.
Indians are price sensitive, so they shy away from the market in times of higher volatility, Chirag Mehta, fund manager at Quantum Asset Management Co., said by phone. Demand in the ETF market moves in line with demand in the physical market and we should see buying coming in during the festival season after the seasonally slack months of June and July.
Reliance suspension
Bullion futures in Mumbai slumped to Rs24,830 per 10 grams on 28 June, the lowest level since August 2011. The contract for delivery in August climbed 0.6% to Rs26,156 on the Multi Commodity Exchange of India Ltd. at 3:29 pm local time, while spot gold in London rose 0.2% to $1,253.62 an ounce.
Reliance Capital Ltd., the financial services company owned by Indian billionaire Anil Ambani, last month stopped sales of gold and halted new subscriptions in its gold savings fund. Jewelers and bullion dealers have halted sales of coins and bars to retail investors to support government efforts to narrow the record current-account deficit.
India has increased import taxes and tightened financing norms in a bid to cut gold purchases and contain the deficit. Finance minister Palaniappan Chidambaram last month appealed to Indians to resist the temptation to buy gold, saying reduced imports may help tackle the current-account gap and the weakness in the rupee. The currency touched a record low of 61.2125 per dollar on 8 July.
The current-account deficit, the broadest measure of trade, tracking goods, services and investment income, widened to $87.8 billion, or 4.8% of the gross domestic product, from $78.2 billion in 2011-2012, according to official data. The deficit is the biggest risk to the $1.9 trillion economy, according to the central bank.
Net redemptions from gold ETFs were Rs206 crore in June, according to data from the mutual funds’ association. India, which allowed trading in gold ETFs in 2007, currently has 14 such funds. BLOOMBERG
