Gold funds offer -2.52% returns in 3 months | Economic Times

Gold funds and ETFs are under scanner for the drop in their performance in the last three months. Experts blame the fall in gold fortunes on the global vaccination drives and optimism around the world economies. Gold prices in India fell amid weak global cues today to a one-month low. Falling for three consecutive days, gold futures on MCX fell 0.14% to over one month low of Rs 48,636 per 10 gram.This trend is reflected in the returns offered by the gold funds. The category has offered -2.52% returns in the last three months, 0.10% returns in one month and -2.15% in one week. The YTD returns from the category have also fallen to the negative category. The negative returns have led to an impact on the inflows in these schemes. The inflows into gold ETFs have fallen from Rs 907.85 crore in August, 2020 to Rs 430.65 crore at the end of December, 2020.After seven consecutive months of net inflows, Gold ETF category witnessed net outflows in November, largely on the back of profit booking by investors. “Gold prices have come down from their all-time high in the recent months. Gold has witnessed an uninterrupted rally in 2020 and we shouldn’t expect similar returns from it now. Economies have started moving towards normalcy and equity markets are doing well. With the vaccination finally happening on ground, gold prices can go down in the coming time or remain flat. Hence the returns from these schemes might be low for a while,” says Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.Let’s take a look at how gold funds have performed in the last eight calendar years. The data shows how gold can go from negative to positive over the years:Calendar yearGold fund returns (%)202026.38201922.6620186.8920172.34201610.872015-8.292014-4.202013-10.78 Is it too soon to believe that the rally in gold is over or can we still see some steam left there? Chirag Mehta, fund manager- alternative investments, Quantum Mutual Fund believes that gold is expected to benefit from the additional fiscal stimulus from the US government and improving investment demand as well as consumer demand from India and China. However, the optimism surrounding the economic rebound and the cheap liquidity backdrop might go against the prospects of gold funds. “The continued optimism on the economic recovery and surging risk assets could be a headwind for gold that could limit its rise in 2021. However, the fact remains that the economic rebound has been losing steam. When the liquidity led momentum recedes and markets start reflecting ground reality, gold should re-price on back of constructive fundamentals, says Chirag Mehta. Experts believe that gold prices and global economies have an inverse relationship. Right now there is optimism because of vaccines and the expectations of a V-shaped economic recovery. However, as and when there are uncertainties, gold prices might go up and the returns will also go up. Retail investors are generally advised to take a maximum 10% exposure to gold funds. “Gold will give you returns in the long term and also cushion your overall portfolio against the volatility of riskier assets. One can’t expect high double digit returns from gold funds year on year. I would say one should have a 5-10% allocation to gold funds for a longer term,” says Himanshu Srivastava.Some experts also believe that apart from Covid-19 threat, the macroeconomic conditions that supported gold are now being carried forward by the world to 2021. Global policy makers will continue to resort to monetary inflation, credit expansion and government spending to tackle the extraordinary economic fallout of the pandemic. “Use of this increasingly impotent monetary policy will mean failure to normalize the world economy as central banks will be trapped in a state of perpetual policy manipulation, financial systems will continue to walk on fiscal crutches, and the system will be marred with vulnerabilities. This will ensure that gold remains a preferred portfolio asset in 2021 and beyond,” says Chirag Mehta.