Asians stick with their gold funds even as others flee

Last Updated: Thu, Jul 25, 2013 07:35 hrs

Asian investors are keeping faith in gold funds, taking in their stride a stunning plunge in the price of the metal over the past few months, as paper gold looks to be finding a stronger foothold in the region.

In sharp contrast to Western markets, where investors made a beeline to exit gold fund investments, a net $33.5 million was pumped into Asian gold and precious metals miners' funds in the three months to June, according to data from fund tracker Lipper and Reuters calculations.

Similar funds in the West saw net outflows of about $18 billion, or about 11 percent of their end-March assets under management, in the same period, according to the Lipper data.

The conflicting responses to the 20 percent fall in gold prices this year show a growing appetite for gold funds in Asia and provide hope for a fledgling funds industry that has struggled to attract investors.

It also shows the limited presence of speculators and hedge funds, who dominate the Western market for gold funds.

"It's more about the mentality," said William Chow, managing director of Value Partners Group's exchange-traded fund (ETF) business. "Asian risk appetite for gold is more stable than that of U.S. investors."

The firm runs the biggest Hong Kong-domiciled gold ETF which held gold worth about $100 million at end-June.

Asia's demand for physical bullion is unparalleled, from buying jewellery for weddings to storing coins under the bed.

Gold - coming off 12 years of gains - is headed for its worst annual performance since 1997 on worries global central banks will withdraw their easy-money policies of the past few years, making the metal less compelling for investors.

The precious metal fell sharply in April, down over $200 an ounce in two days, and then again in June when it fell 15 percent over nine sessions.

India's SBI Gold Exchange Traded Scheme and Japan's Nomura Gold Futures Fund were among funds that saw inflows last quarter, data from Lipper, a Thomson Reuters company, showed.

"Gold is not just considered an investment tool in Asia, it is also seen as a luxury. So when the price drops, people tend to accumulate more," said Tanawat Roongtanapirom, a fund manager at Kasikorn Asset Management, which runs the $591 million K Gold, Asia's biggest gold fund.


Despite the inflows, Asia remains a far smaller market for gold funds compared to the United States, where top hedge fund managers such as John Paulson of Paulson & Co. Inc, David Einhorn of Greenlight Capital Management and Dan Loeb of Third Point LLC have significant exposure to the metal.

Gold-backed ETFs are a relatively new concept in Asia.

China, the second-biggest gold buyer, only recently approved the launch of its first two gold ETFs. The funds raised a total of 1.6 billion yuan ($261 million) in their initial funding round, which was below expectations.

And in top gold buyer India, annual consumption was about 860 tonnes in 2012, according to the World Gold Council. But the 14 gold ETFs there hold less than 40 tonnes of the metal in all.

"The trend of shifting from physical to gold ETFs is just beginning," said Kasikorn's Roongtanapirom.

Siyi Lim, an ETF analyst at OCBC Investment Research in Singapore, said individual investors are becoming more aware of the different gold products in the market.

"Increasingly, we see investors turning to ETFs as a way to gain immediate access to entry and exit," said Lim. "Demand is particularly strong in Hong Kong, Macau and India." ($1 = 6.1374 Chinese yuan)

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