Context: Gold backed exchange traded funds (ETFs) witnessed a huge jump in the first quarter of the year, on the other hand jewellery demand took a significant hit owing to the COVID­19 pandemic and imposed lockdowns.

More on the news

  • The COVID­19 pandemic increased safe haven investment demand for gold.
    • Gold functions as a strategic asset as it holds the ability to act as an effective diversifier and alleviate losses during tough market conditions and economic downturns.
  • The gold backed ETFs saw a sevenfold year on year increase in the midst of global uncertainty and financial market volatility.
    • According to the Gold Demand Trends report by the World Gold Council, global gold demand held firm in the first quarter of 2020 that signalled a rise of 1% compared to the corresponding period last year.
  • The pandemic slashed jewellery demand as global governments imposed lockdown measures. 
  • On the price front, sharp investment inflows helped push the gold price in dollar terms to an eight ­year high.

Exchange Traded Funds

  1. Conceptually, it can be defined as a collection of Securities/Bonds may be traded on the stock exchange.
  2. The trading value of an ETF depends on the Net Asset Value (NAV) of the underlying stocks/Bonds in the basket.
  3. They are traded throughout the day like Stocks, and distinctively from Mutual funds which are traded once a day after market close.
  4. The number of underlying stocks in an ETF may vary from hundreds to thousands across various industries or even restricted to any particular Industry.
  5. Though the ETF does not give a very high return but it gives the opportunity of safe investment which equity does not provide.

Gold-backed ETFs

  • Gold-backed ETFs are instruments of passive investment that are based on price movements and investments in physical gold.

Source: The Hindu

Source: BloombergQuint