BackDiwali 2023: Why gold outshined stock market returns in last one year?
Gold has delivered 18% since Diwali 2022 while silver has ascended to the tune of 21% in this time
PremiumBuying gold and silver on Diwali is an age-old Indian tradition because it is believed that investing on this day is auspicious from wealth management perspective. However, from investment perspective, investing in gold is hedge against inflation. This means, investing in gold keep investors' money insulated from rising cost of livelihood. But, on some occasions, gold deliveries give higher yield than equities also.
Gold vs stock market
Comparing gold against key benchmark indices, gold prices from Diwali last year till date have risen from ₹50,580 per 10 gm to ₹59,654 per 10 gm levels on Multi Commodity Exchange (MCX), logging to the tune of 18 per cent. Since Diwali 2022, silver price has ascended from ₹57,748 per kg to ₹70,025 per kg levels, registering more than 21 per cent rise in this time duration. However, comparing this return against key benchmark indices of Indian stock market, both precious metals have generated alpha return against Indian stock market.
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In last one year, Nifty 50 index has risen around 9.50 per cent (from 17,730 to 19,425 levels) whereas BSE Sensex has shot up near 9.4 per cent in this time. But, Nifty Bank index gave lesser return than other two key indices. Since Diwali 2022, Nifty Bank has risen from 41,340 to 43,820 levels, logging around 6 per cent rise in this time.
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According to market experts, US banking crisis in early 2023, global economic slowdown geo-political tension are some of the major reasons taht enabled gold and silver to beat stock market returns by a huge margin. They went on to add that forthcoming US presidential elections are expected to prompt US Federal Reserve to implement expansive fiscal policies, which may lead to higher demand for gold and silver metals. They said that gold and silver prices are expected to continue is bull trend and it may go up to ₹68,000 per 10 gm and ₹95,000 per kg levels on MCX respectively.
Speaking on the reasons that helped gold and silver to outshine key indices of Indian stock market, Sugandha Sachdeva said, "Several factors contributed to gold's standout performance. Initially, the US banking crisis in early 2023 propelled the precious metal to record highs. Anticipation of a Federal Reserve pivot amid cooling price pressures and weakness in the dollar index added to the impressive returns of this asset, renowned for its role as a wealth preserver and store of value."
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"Despite the Fed's continued interest rate hikes and rising treasury yields, gold remained resilient amid concerns about a global economic slowdown, the unabated central bank buying, and a shift away from the dollar. Additionally, the recent geopolitical conflict between Israel and Hamas heightened market uncertainty, positioning gold as the preferred asset due to its inherent stability during times of crisis and subsequent volatility in the broader financial markets," added market expert Sugandha Sachdeva.
Geo-political tension
"Gold has remained investors' have since outbreak of Ukraine-Russia war, which jeopardized geo-political stability. However, the recent one is Israel-Hamas war that in jected fresh demand for gold and silver," said Anuj Gupta, Head — Commodity & Currency at HDFC Securities.
The HDFC Securities went on to add that Israel-Hamas war is still on and hence gold prices are expected to bounce back from support levels and hence one should maintain 'buy on dips' strategy while investing in bullions.
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Gold, silver price target for Diwali 2024
Asked about triggers that may continue to dictate gold prices in upcoming year, Sugandha Sachdeva said, "The forthcoming presidential elections in the US in 2024 may prompt the Fed to implement expansive fiscal policies, potentially intensifying inflationary pressures. Gold, being a favored hedge against inflation, could stand to benefit from such economic conditions. While buying in a phased manner seems a prudent approach, gold looks poised for a gradual ascent towards ₹65,000 per 10 gm and then ₹68,000 per 10 gm once it sustains above the crucial barrier of ₹62,000 per 10 gm. Support for gold rate today is placed at ₹56,000 per 10 gm mark."
However, Sugandha Sachdeva expected siler to outshine gold returns in next year as well. The market expert said that silver is poised to outperform gold, with expectations to reach levels of around ₹85,000 per kg initially and potentially soaring to far-reaching levels of around ₹95,000 per kg. With key support pegged at ₹65,500 per kg, it's important to note that silver tends to exhibit higher volatility compared to gold, reflecting its higher beta.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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