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Silver ETF gains greater traction as AUM tops Rs 5,000 crore in April
Mon April 29 2024
Two years after the launch of the first mutual fund (MF) offering, silver exchange-traded funds (ETFs) are gaining greater traction. The assets under management (AUM) of the eight ETFs offered by various fund houses crossed the Rs 5,000 crore mark in April amid a rally in silver prices.
Last month, the AUM of gold ETFs offered by domestic MFs topped Rs 31,000 crore for the first time.
Inflows into silver ETFs have been elevated since the start of the calendar year 2024. During January–March 2024, the garnered net inflows of over Rs 1,500 crore compared to around Rs 1,300 crore inflow in the previous nine months of 2023–24 shows data from the Association of Mutual Funds in India.
Back-of-the-envelope calculations based on April 25 AUM disclosures show an inflow of around Rs 650 crore in April. Likewise, inflows into gold ETFs — a more established offering — have averaged Rs 550 crore over the past nine months. The inflows into these two precious metals through the MF route come on the back of a sharp rally this calendar. From this year’s low, gold and silver prices in the domestic market have advanced 17 per cent each from this year’s low.
The rally has burnished the image of gold and silver as ‘safe-haven’ bets during times of geopolitical crisis.
“Global uncertainty is high given the geopolitical conflicts underway in this major election year. In an uncertain political world, gold can be highly attractive. Gold is sensitive to geopolitical risks, especially in cases of outright military conflict. Precious metals are good hedges against geopolitical risks and threats. Conversely, stocks and bonds respond negatively to geopolitical risk and geopolitical threats. For extreme geopolitical risks, only gold and silver display consistent safe-haven properties. The results show that holding precious metals within a diversified portfolio lowers the impact of geopolitical risk. In a climate of heightened geopolitical risk, it is easy to understand why gold has become popular. We believe the impact of geopolitical risks on gold is widely understated and, at least until relatively recently, undervalued by market participants,” said James Steel, chief precious metals analyst at HSBC Securities, in a note earlier this month.
Both precious metals — more so gold — are sensitive to real rates. So far this year, the prices of gold and silver have largely been unperturbed by the change in expectations around the first rate cut by the US Federal Reserve (Fed).
While rising geopolitical tensions boost the appeal of safe haven assets, positive real rates and moderating central bank demand are seen keeping the upside in check.
“The traditional fair value of gold would connect the usual catalysts — real rates, growth expectations, and the dollar — to flows and the price. None of those traditional factors adequately explain the velocity and scale of the gold price move so far this year. Yet that substantial residual from the traditional gold price model is neither a new feature nor a sign of overvaluation. Indeed, the majority of the gold upside since mid-2022 has been driven by new incremental (physical) factors, not least a significant acceleration in EM central bank accumulation as well as Asian retail buying. Those factors remain well affirmed by current macro policy and geopolitics. Moreover, with Fed cuts still a likely catalyst to soften the ETF headwind later in the year and right tail risk from the US election cycle and fiscal setting, gold’s bullish skew remains clear,” said Nicholas Snowdon, metals strategist at Goldman Sachs, in a note on April 12.
Source: https://www.business-standard.com/