The rupee’s appreciation over the past few trading sessions has played a major part in exacerbating the negative returns of gold exchange traded funds in the fiscal year to date (Apr-May 19).
Leading gold ETFs such as Benchmark, Kotak and Quantum have generated negative returns in excess of 6% so far in FY10 against positive returns in excess of 3% in the corresponding period of the previous fiscal. A major portion of these losses (4.4% out of 6.6% across five ETFs) have arisen in the first two trading sessions of the current week, with the rupee rising more than 3% since the past week’s close to 47.78 against the greenback on Tuesday.
Prospects of a further appreciation in the local unit have raised a question as to whether investors would be better off exiting from gold ETFs and putting their money into equities, which, of late, have witnessed a stupendous rally.
However, financial planners, analysts and gold ETF managers are of the view that rather than pulling out, investors would do well to maintain their exposure to the yellow metal, which is a balancing factor in any investor’s portfolio and reduces the risk element therein.
“I cannot make predictions of where the rupee will head from here, but I sure know it is prudent for investors to retain 10-12% of their portfolio in the form of gold,” said Gaurav Mashruwala, a certified financial planner. “I will not advise my clients to move out from gold which shares no correlation with either equity or debt and to that extent minimises portfolio risk. If gold falls, I’d rather an investor increases his holding than move out.”
“The prospects for gold remain buoyant over the long term as there are anticipations of dollar weakness and rising inflation, going forward, with governments across the world increasing money supply,” said Sandesh Kirkire, CEO, Kotak AMC.
