Indian investors stay away from gold ETFs

NEW DELHI/LONDON: India, the world’s top gold consumer, has barely scratched the surface for exchange traded funds (ETFs) and it will be a long haul to tempt buyers clinging to jewellery to switch to rules-ridden paper gold.Though the country consumes 800 tonnes a year – nearly a fifth of the world’s annual gold supply – in jewellery and physical metal, the funds have attracted investments of less than five tonnes since their listings three months ago.In contrast, an ETF launched in the US in 2004 attracted investment equal to eight tonnes of gold on the first day and more than 100 tonnes in about a week. Global gold funds now collectively hold more gold than the Chinese central bank, the world’s tenth-largest holder with 600 tonnes.Analysts said bad timing and rigid government rules were equally to blame for not winning over more Indian investors.“It has been launched at the wrong time when gold prices have started dipping. People are sitting with surplus cash, but the volatility has kept investors away,” said Mumbai-based Gnanasekhar Thiagarajan, director of Commtrendz Risk Management.“Vibrant equity markets have also kept investors away from gold exchange traded funds (ETFs),” he said.The Mumbai Stock Exchange’s main index surged 47% in 2006 and another 5% this year. Gold rose 24% in 2006 but is only up 1.6% so far this year.Analysts said investment in Indian gold ETFs was a sure bet, provided investors were willing to hang on for a longer period and shed their desire to buy it physically. The interest was being stymied by lack of aggressive marketing.“The awareness of this type of investment vehicle is still low. Also, if the ETFs have to reach the rural public, the account opening procedures and documents should be kept simple,” said SI Kannan, analyst with Kotak Commodities.Mandatory requirements for an income tax identification number made the system difficult for illiterate farmers who buy gold. Rules that prevent commodity firms from giving price guidance were also hampering growth, analysts said.Analysts said that other issues such as restricting trading in ETFs to Indian stock trading hours prevented investors from taking guidance from global price trends, especially from gold futures in the US.Stuart Thomas, managing director of US-based World Gold Trust Service, said the poor response was also a result of the structure of the Indian products. - Gulf Times