Gold investment has been a very important aspect for ages across the globe. This paper attempts to analyze the performance of gold Exchange-Traded Fund (ETF) with respect to risk and return against the diversified equity fund and market portfolio. It also examines the role of gold in hedging equity investment risk. The study is based on data for the period from January 2010 to August 2011. The analysis shows that gold ETF has given good return in comparison to a diversified equity fund during the study period.

Physical gold is an irreplaceable part of Indian culture. Indians have used gold for ages for various cultural reasons as well as for its importance as store of value. Gold has played the role of an important investment avenue because of its ability to provide liquidity and transparency in price discovery. In the present situation, we have another avenue for making gold investment, i.e., by investing in gold Exchange-Traded Funds (ETFs) and gold mutual funds.

Financial advisors across the globe are today putting a lot of importance on gold as an investment product, the major reason being that the value of gold has been increasing and has reached an all-time high in the recent past. Against this background, the paper tries to address the following questions:

• How does a gold ETF perform in terms of returns and risk against a diversified equity fund and market portfolio?
• Should gold ETF be considered a part of the portfolio to hedge equity risk or maximize portfolio returns?

The paper is structured as follows: a brief explanation of the basic concept is followed by the answers to the questions raised above, and finally, the conclusion is offered.

Financial Risk Management Journal, Gold ETF Performance, A Comparative Analysis, Exchange-Traded Fund, Portfolio Performance Measures, Gold Price and Its Importance, Methodology and Analysis.