Gold funds lose 2.45% in three months. What should investors do?

Gold funds lost around 2.45% in three months, according to the ACE MF database. These funds have lost around 1.44% in one month. These commodity based schemes offered 5.07% and 9.56% in six and nine months respectively. There are 24 gold schemes available in the market.

DSP World Gold FoF lost the most of around 5.47%, followed by LIC MF Gold ETF FoF which lost around 3.08%. Around 18 schemes lost around 2% in three months.



“The Fed pivot narrative was gathering steam after the US regional banking crisis in March – gold had run up as markets priced in rate cuts by the end of 2023. Given the stickiness of Core inflation in the US and the resilience shown by the US economy, the Fed thinks there is more requirement as well as more room to tighten policy and has thus been pushing back against that narrative. The Fed’s hawkish rhetoric has been driving up US Treasury yields and in turn the US dollar. This has weighed on gold prices in the recent past,” says Ghazal Jain, Fund Manager- alternative investments, Quantum Mutual Fund.

In the one year horizon, the schemes gave around 12.36%. DSP World Gold FoF gave the most of around 15.74%. In a three year horizon, the schemes have offered around 2.65%. Axis Gold Fund gave the highest return of 3.74%, and DSP World Gold FoF lost the most of around 9.43% in the three year horizon.

What strategy should you follow if you have investments in these funds? “Gold prices are currently off all-time high levels and are expected to stay rangebound for the foreseeable future till clarity emerges on the global growth and inflation fronts. Investors can use a buy on dips strategy to build a 15-20% allocation to gold which can play a risk-reducing role during the current macroeconomic and geopolitical uncertainty as well as enhance returns in case of a growth setback where the Fed is forced to cut rates even while inflation is high,” says Ghazal Jain.

“Investors can choose Gold ETFs to invest in gold as they come with purity, price efficiency and liquidity benefits. Those investing via the Mutual Fund route can opt for Gold Fund of Funds which in turn invest in Gold ETFs,” she added.

The schemes are benchmarked against Gold-London Bullion Market association (LBMA), Gold-India, and FTSE Gold Mines. Gold-London Bullion Market association (LBMA), and FTSE Gold Mines lost around 0.74%, and 9.51% respectively in three months.

So if you are interested in investing in gold funds, what is the outlook for gold funds? “While investors broadly expect the Fed to keep rates on hold in September, they have also pushed back bets of interest rate cuts to June 2024. More rate hikes or bets for more rate hikes by the Federal Reserve and growing narrative of a US soft landing will keep a lid on prices in the near term. The downside, meanwhile, seems limited given the concerns about Fed overtightening, a potential US recession, rising US debt levels, sticky inflation, central bank gold buying and geopolitical tensions,” added Jain.

Gold is used as a hedge against economic uncertainties and as a tool for diversification of the portfolio. Gold tends to outperform all other assets when there is economic turmoil.

Gold and silver funds are used for portfolio diversification. If you have a large portfolio, you can earmark a small percentage of the total portfolio (advisors say around 10%) to invest in gold and/or silver. If you are starting out or you have a very small portfolio, you can give it a miss. Investors should remember that these funds wont offer you greater returns year after year. They are supposed to offer you diversification and add stability to your portfolio in times of economic turmoil.