GOLD ETFs MAY FACE REDEMPTIONS

Amid liquidation of gold Exchange Traded Funds (ETF) in the global markets due to the ongoing fall in gold prices, fund houses today said redemption pressure will certainly rise if the price fall continues. They, however, argued that it would not be the end of the road for gold as an asset class and that the yellow metal is crucial for asset diverisification purpose, apart from the fact that nothing fundamentally has changed better for the global economy. "Gold ETFs have seen redemption pressure in the last fiscal in comparison to the 2007-2011 period. With a steep fall in gold prices, this presure may continue. However, there is less possibility of huge redemption as gold as an asset class remains important for portfolio diversification," senior vice-president and head of products and communication at ICICI Prudential M F Himanshu Pandya told PTI today. Gold prices hit a near 15-month low today in the country following reports of Cyprus being forced to sell its gold holding reserves. Other troubled EU nations like Italy, which has the fourth largest gold reserve holding, was also being forced to sell gold to bring its finances back to sails. Gold prices have fallen to Rs 26,850 per 10 grams today from a high of over Rs 33,000 crore per 10 gram mid last year. He also said investors should not expect super-normal profits from the gold ETF space as there is renewed faith in the dollar due to the recovery of the US economy. On the possible rise in redemption pressures in the gold ETF space, IDBI MF chief executive Debasish Mallick said, "if gold continues to fall, there is a likelihood that investors will exit."

He, however, said nothing has fundamentally changed in the global markets for justifying such fall in the gold prices. A fund manger from Quantum Mutual Fund said despite the falling prices, gold will remain crucial as an asset class for diversification. "Gold ETFs comprise a very small amount out of the total pie of investment by domestic investors. So, there may not be high redemptions as investors with long-term outlook will stay invested in this asset class," fund manager (commodities) at Quantum MF Chirag Mehta said. Mehta also said the recent fall is a correction and may not continue as fundamentals have not changed significantly in the global economy.

 

INDIA's GOLD IMPORTS FALL BY 25 PERCENT

Gold imports are likely to go down by about 25 per cent this month to around 53.25 tonnes compared to the same period last year due to the declining gold prices, a bullion trade body today said. "The imports of the yellow metal is likely to be 25 per cent less than the corresponding month last year as the gold prices are declining steadily. Usually, when the prices drop traders hold back in anticipation of further decline, while they buy when prices rise with the fear of additional increase in rates," Bombay Bullion Association president Mohit Kamboj told PTI here. In April 2012, India had imported about 71 tonne gold. When the price stabilises, which is likely to be in a few days, imports of the precious metals will again pick up, he said. "We expect the gold prices to stabilise in next few days. After this, there might be a pick up in imports," he added. India imported about 250 tonnes in the first quarter of this year amid decline in international prices and rise in demand. The country had imported 207 tonnes of gold in January-March 2012. India's gold imports had dipped by 12 per cent in 2012, to 864.2 tonnes compared to 986.3 tonnes in 2011, mainly on account of jewellers' strike over certain budgetary measures and sharp rise in domestic price, according to the World Gold Council Demand Trends Report.