For once, there are enough straws in the wind that indicate the gold fever among Indian investors are receding. Firstly, May saw an actual outflow from the class of mutual funds called Gold ETFs (Exchange-Traded Funds).
Investors withdrew R41 crore from these funds — the highest monthly outflows in more than four years. In fact, the last time a larger outflow happened was in January 2008, which as you will remember was not a particularly normal month for investing.
And it’s not just ETFs, imports of physical gold are also in sharp decline. April saw 35 tonnes of gold being imported, down from three times as much in April 2011.
The reason for the declining interest in gold investments is clear. Few people believe that there’s much room remaining for further windfall gains in the yellow metal.
Of course, for investment analysts like me, gold is a problem. You could even say that it’s an embarrassment. We’ve been asking investors to not be lured by gold since 2007, when it was a third of the price that it is now. Maybe gold will yet turn around and manage to again embarrass us, but clearly, an ever-larger number of people don’t believe that any more.
However, it’s clear that unlike earlier times, today’s gold investor is a trend chaser. Gold investments have been driven by the rising prices.
Now, most of them have sensed that the big gains are gone. Since about September last year, gold has been in a stasis or a decline, depending on where you start. Certainly, it’s now been at least three quarters since the trend has changed. That’s long enough for the most optimistic momentum-chaser to figure out that something is different now. And that’s all for the good. Making an unproductive asset an important part of one’s investment portfolio is never a great idea, no matter how inflated its bubble looks.