Despite the steady increase in gold prices, investors are unlikely to shift money from stocks to the precious metal, analysts said.
Gold prices, which fell 1.58% in 2018, have gained 19.06% so far this year. Meanwhile, the benchmark Sensex index is up 1.75% in rupee terms, but down 0.94% in dollar terms so far. The rupee has fallen 2.64% between January and August.
Gold’s uptick in 2019 so far is the highest in the last nine years. In 2010, gold prices were up 29.52%, while the Sensex rose 17.43% in rupee terms, and 22.22% in dollar terms.
According to Madhavi Mehta, analyst at Kotak Securities Ltd, US-China trade concerns, disappointing economic data from major economies, downbeat growth forecast, interest rate cuts by major central banks and sharp inflows into exchange traded funds have led to a sharp rally in gold prices. “Gold had witnessed range-bound movement for the last few years as firmness in equity markets kept investor interest low. With signs of economic turmoil, we have seen a shift towards safe haven assets like gold, US bonds etc. Gold and the equity market generally have a negative correlation, so with increasing uncertainty about global equities, optimism about gold has risen."
However, she added that there may be short-term correction in gold prices if there was some stability in the global financial markets. “We have been holding a bullish view for gold, owing to global economic uncertainty and shift in monetary policy stance of central banks. With these factors in place, the overall outlook remains positive. However, the price rally has come within a very short span and in reaction to US announcement of tariffs on China," said Mehta.
Rahul Gupta, currency research head, Emkay Global Financial Services Ltd, said this could be the last leg of the rally.
“The prices have breached the consolidation zone at $1,400 and rallied steeply towards $1,485 levels. This indicates that prices are about to retrace 61.8% of its primary downtrend (which was in 2012 from $1,920 to $1,045), this level is seen at around $1,600…Therefore, this could be the last leg of the rally before turning into bearish phase."
The gold and silver ratio essentially is the amount of silver it takes to buy an ounce of gold. Currently, the ratio is 87.71, after topping near 93 levels in July this year.