Gold & equities near record highs; how rare is it and why?

Gold prices in India have gained sharply by as much as 30 per cent in the last one year while the equity benchmark Nifty has yielded 32 per cent return during the same time. The return of a similar scale on these assets is logged even as gold and equities generally share a negative correlation. This is because a rise in investors' appetite for risk dents the appeal of gold as a non-interest yielding asset class, and vice versa.

The gains which are more less in tandem have come in gold for a number of reasons including gold's appeal as a safe haven amid geopolitical tensions, aggressive central bank buying and monetary policy easing which tends to impact the dollar.

What's helping gold price to run despite current risk-on sentiment? Analysts weigh in

Manoj Jain- Director Prithvi Finmart is of the view that Fed rate cuts,  geo-political tensions and weakness in the dollar index are major trigger for strength in the gold prices and investors are largely betting on the trend. 

Also, buying of global central banks and de-dollarisation is also supporting gold prices and that is why investors and traders are aggressively buying gold, he added.

How rare is the gold and equities touching all-time high simultaneously?

Dr. Renisha Chainani, Head Research - Augmont Gold For All said, "it is relatively rare for gold and equities to be near record highs simultaneously, as they tend to respond differently to economic conditions. Gold is traditionally viewed as a "safe-haven" asset, attracting investors during times of economic uncertainty, inflation, or financial market instability. In contrast, equities typically rise during periods of economic growth and investor confidence, when corporate earnings are strong and risk appetite is high.

However, this dynamic can shift during periods of unusual economic circumstances, such as when central banks flood markets with liquidity through stimulus measures or keep interest rates exceptionally low. For example, during the COVID-19 pandemic, both gold and equities hit record highs in 2020 due to massive monetary stimulus, low interest rates, and inflation concerns. Investors flocked to gold as a hedge against potential currency debasement and inflation while also investing in equities due to optimistic growth prospects from stimulus support, added Renisha. 

Additionally Renisha remarked that periods of high inflation or geopolitical tensions, even during economic growth, can drive both asset classes upward, as investors seek both safety and growth. Though uncommon, these simultaneous highs occur during times of significant monetary intervention or global uncertainty.

How has gold performed internationally?

Gold internationally has gained 40 per cent and is now close on the heels to hit $2,700 per troy ounce (1 troy ounce= 31.10 gms). At the last count, spot gold after hitting a new high today of $2,670.52 per ounce traded with a cut of 0.11 per cent.

Jain noted that the price differential between international and domestic markets in gold prices is chietly due to the hefty duty reduction in Union Budget on gold from around 15 per cent  to 6 per cent and despite that prices hit a record high in the domestic markets. 

Gold price forecast for Dhanteras/ Diwali

Overall trend of gold is bullish from long-term perspective but we expect gold prices to consolidate for some time in $2635-2720 per troy ounce range and looking to that gold is likely to trade around Rs 76,500-77,000 range this Diwali. 

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