Gold ETF Assets in India Drop for Third Month as Prices Plunge

The value of assets in gold-backed funds in India, the world’s biggest consumer, fell for a third month in June as a bear market in bullion deepened.

Holdings in exchange-traded funds, or ETFs, declined 9.2 percent to 96.1 billion rupees ($1.6 billion) as of June 30 from a month earlier, the Association of Mutual Funds in India said on its website, without giving data on volume. The value of assets has lost 20 percent since reaching a record 120.6 billion rupees in January, association data showed. Gold fell 4.5 percent in rupee terms in June, falling for a 10th month.

Global gold-backed exchange-traded products have fallen below 2,000 metric tons for the first time since May 2010 after bullion slumped on expectations the U.S. Federal Reserve will reduce stimulus measures. Gold in dollars slid 23 percent last quarter, the biggest loss since at least 1920, as some investors lost faith in the metal as a store of value on signs of an improving U.S. economy.

“Indians are price sensitive, so they shy away from the market in times of higher volatility,” Chirag Mehta, fund manager at Quantum Asset Management Co., said by phone. “Demand in the ETF market moves in line with demand in the physical market and we should see buying coming in during the festival season after the seasonally slack months of June and July.”

Reliance Suspension

Bullion futures in Mumbai slumped to 24,830 rupees per 10 grams on June 28, the lowest level since August 2011. The contract for delivery in August was little changed at 26,028 rupees on the Multi Commodity Exchange of India Ltd. (MCX) at 11:30 a.m. local time, while spot gold in London was 0.4 percent lower at $1,246.30 an ounce.

Reliance Capital Ltd. (RCAPT), the financial services company owned by Indian billionaire Anil Ambani, last month stopped sales of gold and halted new subscriptions in its gold savings fund. Jewelers and bullion dealers have halted sales of coins and bars to retail investors to support government efforts to narrow the record current-account deficit.

India has increased import taxes and tightened financing norms in a bid to cut gold purchases and contain the deficit. Finance Minister Palaniappan Chidambaram last month appealed to Indians to “resist the temptation to buy gold,” saying reduced imports may help tackle the current-account gap and the weakness in the rupee. The currency touched a record low of 61.2125 per dollar on July 8.

The current-account deficit, the broadest measure of trade, tracking goods, services and investment income, widened to $87.8 billion, or 4.8 percent of the gross domestic product, from $78.2 billion in 2011-2012, according to official data. The deficit is the biggest risk to the $1.9 trillion economy, according to the central bank.

Net redemptions from gold ETFs were 2.06 billion rupees in June, according to data from the mutual funds’ association. India, which allowed trading in gold ETFs in 2007, currently has 14 such funds.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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