5 reasons why there is a mad scramble for gold ETFs

Posted By:

5 reasons why there is a mad scramble for gold ETFs
The World Gold Council in a recent report has highlighted that there was a 53% jump in investment in Gold ETFs across the globe in Q3 2012. In India, too, there's a mad rush for gold ETFs, as can be witnessed by the number of mutual fund offering these schemes. Here are a few reasons why there has been a scramble for gold ETFs.

(To know more about Gold ETFs, click here)

1) Easing programmes in Europe and the US means the world is flush with money

The constant easing programmes, like the quantitative easing programme (QE3) by the Federal Reserve and bond buying programmes by the European Central Bank has unleashed fresh liquidity into the global financial system, which is finding its way into gold and particularly gold ETFs.

Easing programmes generally involve buying securities to flush the global system with liquidity in order to support growth. However, instead of lending and supporting growth many banks and institutions are deploying the money into assets like gold ETFs.

2) Asset choices limited

While there is a surplus liquidity in the global economy, the asset choices are limited. For example, the big fund houses are reluctant to deploy large amounts in the equity markets given the fragile nature of economic recovery. Hence, given that risk, fund managers are preferring gold ETFs.

3) No hoarding physical gold

Unlike physical gold, where there is a need to hold gold, which can be subject to theft and other storing costs, Gold ETFs are held in electronic form. They also give one the option to convert the electronic form into physical form if necessary.

4) Fragile economic recovery, means gold remains the best

Investors are finding comfort in gold, given that there is a recession in the eurozone; the US has fiscal cliff hangover and China is witnessing a severe slowdown. Gold and Gold ETFs hence continue their safe haven tag in a risky environment.

5) No storage costs and no risk of theft

Unlike physical gold, ETFs are held in electronic form and there is no need to hold physical gold and fear theft, as well as incur storage costs.

The Gold ETF and gold sheen is unlikely to go away anytime soon, so just ride piggy-back on the existing schemes.

Click to know how to invest in Gold ETFs


Read more about: gold etfs
Story first published: Saturday, November 17, 2012, 10:05 [IST]
Please Wait while comments are loading...
Company Search
Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

Thousands of Goodreturn readers receive our evening newsletter.
Have you subscribed?