Wednesday, 25 April 2012

Indian Gold ETF that swaps shares for gold boosted by festival

The amount of gold sold during yesterday's gold buying festival in India was a disappointment according to Reuters: Prices, inflation dent gold demand on Akshaya Tritiya

That was in the traditional physical markets. But sales in the physical gold ETF market soared as trading costs were waived. The biggest percentage rise (although from a lower base than its larger peers) was seen by the only ETF that gives its investors the option to convert ETF shares into gold.

The Motilal Oswal Asset Management ETF - which is traded on the Indian National Stock Exchange with the ticker MGOLD - was only launched a couple of weeks ago. Its promise to convert shares into gold is not available from any other physical gold in India (or the UK apart from GBS but via a convoluted process).

The value of the gold held in this fund appears to have fallen to around $6 million (31.49 crore rupees market cap = $5.9m but I'm not sure about that) since its launch a couple of weeks ago but again I have to confess to not being 100% certain that these figures mean what I think they mean.

I haven't looked at all the gold ETFs in thorough scientific fashion but the data still shows the product selling well during the festival.

Reuters also delved a little into the growing market for gold exchange traded funds.

The report linked to above said: "Trading in gold ETFs jumped on Tuesday, because people have started presenting the paper instruments as gifts rather than the metal itself. Over 200,000 units of Kotak Gold ETF traded on Tuesday, compared with a typical daily average of 2,000 to 5,000 units."

Indians are also able to borrow against gold ETF shares and get better rates than they do when they present real gold.

The opposite is the case in the west where investors remain suspicious that ETFs don't have gold to back their shares.

Earlier this month Nitin Rakesh, CEO of Motilal Oswal Asset Management, told Gold ETF Investor that Indians are rebalancing the way they hold gold. As such he does not expect gold ETF growth to slow down despite increased import duties: "Although the increase in taxation is expected to have a slightly negative impact on gold imports, the ETF demand is not expected to suffer as share gain from other avenues of gold consumption / demand is expected to more than compensate for the same."

The data in the chart above came from historical figures provided by NSE 

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