These days I am getting lot of queries regarding gold & most of them start with “What should I do with my gold funds?” so I decided to share recap of what has happened in last couple of years & what I think now.
In August 2011 when everyone was Gung Ho about gold – I asked TFL readers “Your views on Gold Prices” & I also shared my Views:
My view is “Trees don’t grow to heaven” – I don’t know it is a bubble or not but if it is, gold price will come down at some point of time. That doesn’t mean gold price will not go higher from current level but do you think you will be smart enough to exit before the bubble burst?? If your answer is NO then have a proper asset allocation & if answer is YES – question is do you think you will be smart enough to exit before the bubble burst?? (Keep asking this question till you get the answer NO)
Before I share what I think about gold prices NOW – let’s check few charts & recap this journey.
World’s Biggest ETF – Performance Chart
Gold ETFs gave investors a new option to invest in gold – they don’t have to worry about security. SPDR Gold Share is world’s biggest gold ETF – Asset Size of this fund is $ 75,391 Million.
- Or $ 75 Billion
- Or INR 4.14 lakh crore (approximately 50% of Indian Mutual Fund Industry)
- Or more than 1300 tonnes gold – which is double than Indian Gold Reserve (550 Tonnes).
Have you ever thought, what will happen if people will lose interest in gold as an asset class??
India’s First Gold ETF
Goldman Sach (earlier benchmark) Gold ETF is the oldest Indian gold ETF with asset size of Rs 3377 Crore, this makes it biggest ETF in India.
Not Bad 2.5 times in 7 years or 14% CAGR.
DSP BR World Gold Fund
This is a feeder fund & was launched in August 2007. Investments were rooted in Blackrock World Gold Fund – which is investing in gold mining companies. Story shared was “that gold mining companies will perform better than GOLD.” Result is in front of us.
Gold Savings Fund
Mutual Funds (other than DSP) were not able to capitalize (earn money) on gold rush – they needed more assets to earn fees on that. ETF as a concept has not picked in India so Reliance bought first gold savings fund (IPL award Nayi Soch) – you invest in fund & they will invest in ETF. (they will charge double expenses)
I wrote this article “Should you invest in Reliance Gold Savings Fund?” & concluded:
“Everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price. I think I have already expressed my views on Gold Prices & also shown you expenses in this product. End of the day it’s your hard earned money.
Agents will come to you & show you 5 Year & 10 year return charts – ask them for 20 years & 30 years chart. You will find gold have even underperformed Fixed Deposits.
Have you ever wondered where were these guys 5 years back when gold was 1/3rd of its current price??”
You can see difference in return between SPDR($) & Reliance Gold(INR) in the same period – this is because of INR depreciation vs dollar in last 2 years. Check INR Vs Dollar chart.
Reliance Gold Savings Fund Asset Growth
Concept was well accepted by investors (or pushed by asset management companies & distributors) – as investors are always looking for convenience. Current AUM of Reliance Gold Savings Fund is 2270 & Reliance Gold ETF is 2926. That means direct investment in Reliance Gold ETF is just Rs 650 Crores.
SBI Gold – Number 3
There is long list of gold funds that were launched in this period but third rank goes to SBI Gold Fund (I shared some interesting data & comparisons at the time of fund launch) – this fund came from arguably India’s second (I believe first is our LIC) most trusted brand.
SIPs in Gold Fund
These funds promoted SIPs in Gold funds – if someone invested Rs 1000 per month since inception of fund.
|Fund||Investment Amount||Current Value|
I think I have no clue where gold prices are heading because we don’t know the size of bubble (IF….) – this we earlier discussed in “Indian Real Estate Bubble – will it ever burst?”
I think there are lots of lessons from what has happened with gold prices in last 40 years.
Great investment analyst Benjamin Graham (guru of Warren Buffett) was asked what it takes to be a successful investor; he replied
“People don’t need extraordinary insight or intelligence.
What they need most is the character to adopt simple rules and
stick with them.”
I will love to hear your views & lessons in comment section.