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
- Conceptually, it can be defined as a collection of Securities/Bonds may be traded on the stock exchange.
- The trading value of an ETF depends on the Net Asset Value (NAV) of the underlying stocks/Bonds in the basket.
- They are traded throughout the day like Stocks, and distinctively from Mutual funds which are traded once a day after market close.
- The number of underlying stocks in an ETF may vary from hundreds to thousands across various industries or even restricted to any particular Industry.
- 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 are instruments of passive investment that are based on price movements and investments in physical gold.
Source: The Hindu