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Since time immemorial, gold has fascinated
mankind whose fascination has only grown
with the passage of time. The craze for
gold has no borders - it cuts across countries,
regions and continents. However, over the years, gold
has grown from being used as an ornamental element to emerge as an asset class; an investment
avenue like stocks, bonds and currencies. Two
factors make gold a good bet for investors. First
and foremost, it is a good hedge against inflation
and, second, it is quite liquid - almost like cash. Interestingly, it is these two characteristics
which are now being tested as the world economy currently faces its worst ever financial crisis
since the Great Depression of the 1930s.
Given that, the most obvious question to ask
is: How has gold performed vis-à-vis other
asset classes? And, more importantly, whether Gold ETFs, a category of exchange-traded mutual
funds that invest solely in gold, have been able to
benefit from the `bull run' in gold prices and
outperform other investment instruments such as equities?
To begin with, the year 2008 can be easily described as one of the worst years in recent
times as investors across the asset categories - be
it stocks, bonds or commodities - suffered significant losses. The subprime crisis, which
led to subdued market sentiment in the initial part
of the year, later culminated in a full-fledged
global financial crisis that brought the global
economy into a state of despair and rattled investors
across the globe. However, amidst all the turbulence,
one asset class that could hold its own and stand tall
is the yellow metal. This was even as other
bullions like silver and platinum suffered. For
instance, while both BSE Sensex and NSE Nifty lost
52% and 53% respectively during the year, gold, on
the other hand, gained about 22%; pure gold (99.9% purity) rose to touch Rs. 13,085, as on
December 24, 2008, a gain of Rs. 2,340 per 10gms
from previous year's close of Rs. 10,745 per
10gms. Silver (.999 fineness), on the other hand, fell
from a high of Rs. 19,560/kg , touched during the end
of December 2007 to Rs. 17,375, as on December 24, 2008; thus losing about 11%.
However, interestingly, gold ETFs even outperformed
gold by a substantial margin as they delivered, on
an average, 26% returns as on January 1, 2009. Out
of the four Gold ETFs currently available in the country namely Kotak Gold ETF, Quantum
Gold ETF, UTI Gold ETF and Reliance Gold ETF, UTI delivered returns in excess of 26% while
Reliance churned out a return of a little over 24%.
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