Mint Quick Edit | Why an end to India’s gold ETF rush may be good for its economy

2 weeks ago 5

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Summary

Retail investors flocked last month to gold ETFs, putting more money in these than they put in equity mutual funds, just before the metal’s price fell off its peak. For the economy’s sake, let’s hope last month’s gold frenzy was just a blip.

The typical story of retail investors joining market rallies at their fag end might be playing out in gold, with its exchange traded funds (ETFs) recording a late gush of inflows. In January, these reached ₹24,040 crore, according to data from the Association of Mutual Funds in India, up several fold from ₹3,742 crore as recently as in November.

Notably, this is the first time that monthly gold ETF inflows have exceeded the intake of equity mutual funds, which slowed to ₹24,029 crore in January from ₹29,911 crore in November.

At work, clearly, was the lustre of gold’s past-year gains as the US began to rattle the world order. Anxiety over paper assets that drove the gold rally, though, may have peaked, going by how gold has dropped in February. If this reversal leads investors back to equity funds, it would be a relief.

Gold may rise in value (or fall), but money put into it does nothing for the economy. In contrast, equity investments support a market that plays a useful intermediary role by directing public funds to productive ventures. Even secondary share-buying matters for the signals it sends and business it enables. Hopefully, investors will learn to resist the dazzle of gold.

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