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Gold likely to lose shine with equities gaining momentum

Investment in gold exchange-traded funds (ETF) has declined recently. In June net inflow in Gold ETFs stood at 134.83 crore compared to 203.39 crore in May this year, as per AMFI data. With the equity market stabilising, gold flows are expected to decline furthermore. However, gold ETFs are still a better option for investments for hedging funds amidst uncertainties. Both Sensex and Nifty 50 have been on a bull run this week as signs of exhaustion in a deep bearish tone finally could be seen and investors park their money in value stocks.

The June 2022 quarterly earnings have taken the focus currently and some breather has been witnessed from the inflationary pressure, geopolitical tensions, and rising interest rates.

Sensex and Nifty 50 have gained by around 4% each since last Friday’s trading session. Investors’ wealth on BSE has climbed by more than 8.47 lakh crore since last week.

BSE market cap is around 2,60,42,730.43 crore on Thursday, higher by 8,47,257.71 crore from 2,51,95,472.72 crore of July 15.

FPI investors have also emerged as net buyers in the last few sessions as the selloffs have declined in July drastically. As of now, this month, FPIs outflow is around 776 crore in the equity market.

From July 1-15, FPIs outflow in the equity market stood at 7,432 crore, as per the NSDL data. This means, that FPIs have made major buyings this week in the equity market and that has recovered some of the losses that appeared in the first half of July.

Gold prices have also made some significant corrections. On Thursday, at MCX, gold futures maturing August 5, was at 50,390 up by 165 or 0.33%. In the first week of July, the gold price was over 52,100 after the government increased import duty to 12.5% from 7.5%.

Talking about the decline in Gold prices and ETFs, Roopali Prabhu, CIO, and Co-head of Products & Solutions, Sanctum Wealth said, “In the calendar year 2021 the average monthly inflows in gold ETF was about 400crs. In Jan and February 2022, there were net outflows, but post the Russia-Ukraine crisis as the market corrected and inflation spiked a lot of money moved into Gold as a hedge against geopolitical risk, volatility, and inflation. While gold prices haven’t moved much, they have protected portfolios as the rest of the market (both equities and bonds) have corrected over the last few months. The sharp inflow in April of 1100crs was an aberration compared to 2021 average monthly inflows and we are now seeing flows normalise.”

“With equity markets stabilizing we expect money to move into equities causing gold flows to diminish further,” Prabhu added.

Should you still invest in gold ETFs when the equity market is gaining moment?

Prabhu said, “Generally speaking, all investors including those with an aggressive risk profile investors should always have some strategic allocation to gold. Gold is less correlated with equity and debt and also tends to act as a hedge against uncertainty. While we expect both equity and debt markets to do well over the long term, we expect volatility to continue in the coming few months as central banks hike interest rates, global liquidity is sucked out and geopolitical uncertainty persists. Additionally, US dollar strength has weighed against gold over the last few months. As the dollar stabilizes we could see gold prices move higher. Hence, we suggest investors to remain invested in gold.”

On other categories of MFs, Prabhu said, “If investors have a long investment horizon say 3 years and beyond, given the correction, we believe it to be a good time to add to equities in a staggered manner. Investors can look at flexi-cap funds which have the flexibility to choose companies across market caps at the current times. Within debt, we like target maturity rolldown funds with target maturity of 5-6 years.”

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