Nifty-gold ratio jumps! What does it signal amid softening oil, US dollar rates?

Nifty 50-gold ratio: After slipping below 1.50 last week, the Nifty 50-gold ratio improved close to 1.60. This was due to a rally of around 250 points in the Nifty 50 index and a dip in the gold prices from around ₹1,55,000 per 10 gm to around ₹1,47,000 per 10 gm this week.

According to market experts, both gold and equities are moving in step these days, tracking the US dollar and oil prices. The rising US dollar has capped the gold price rally despite the uncertainty caused by the US-Iran war. Similarly, equities have come under selling pressure as oil prices surged after the Strait of Hormuz closure, renewing inflation fears and igniting earnings concerns for India Inc.

What Nifty 50-gold ratio signals?

The Nifty-gold ratio is a financial metric that compares the value of the Indian stock market, represented by the Nifty 50, to the price of gold.

Amit Goel, Chief Global Strategist at PACE 360, said that the pivot point for the Nifty-gold ratio is 2.50. If the Nifty-gold ratio is below 2.50, then investor focus shifts to equities. Similarly, when the ratio is above 2.50, the preference is skewed towards gold.

However, one must remember that the Nifty-gold ratio technique is useful when fundamentals are unclear and should not be used as a rule of thumb.

Why will stocks remain under pressure?

Anuj Gupta, a SEBI-registered market expert, said that gold prices are expected to rise faster than equities in the short to medium term, as the impact of the US-Iran war is expected to persist for a longer period, even after the war ends.

Supply of oil may remain affected, as oil-producing countries will face challenges in rebuilding oil infrastructure, Gupta said, suggesting that uncertainty around the global economy is expected to last even after the West Asia crisis is resolved.

“The market is expecting a series of weak quarterly earnings seasons after the US-Iran war, as this geopolitical tension has renewed fear of inflation and economic slowdown. So, equities are expected to remain under pressure,” said Gupta.

Is it the right time to buy gold?

Gold prices crashed from around ₹1,55,000 per 10 gm to around ₹1,47,000 per 10 gm after the sudden rise in the oil and US dollar rates.

"However, we saw the oil and US dollar rates retracing once there were efforts from the US President to open the Strait of Hormuz,” said Goel.

On whether one should buy gold despite the Nifty-gold ratio being at 1.60, both experts said that buying gold in the current market scenario is advisable as oil and US dollar rates are expected to fall further, while the tension caused by the US-Iran war is expected to soften.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.