Why gold outshined Indian stock market in H1-CY24? Explained with three crucial reasons

Gold, a distinctive asset, is currently trading lower in morning deals. However, it has managed to outperform the frontline indices of the Indian stock market in the first six months of the current year (CY) 2024. From January to June 2024, the price of gold in the domestic market has risen by approximately 13 percent, surpassing the Nifty 50 index's surge of nearly 10.50 percent. The BSE Sensex increased by around 9.50 percent, and the Bank Nifty index rose by around 8.25 percent in H-1CY24. The convergence of gold and equities in the same direction, eagerly awaited by asset investors, is a significant event, especially in anticipation of the US Fed rate cut.

Commodity market experts attribute the rally in gold prices, surpassing Nifty, Sensex, and Bank Nifty, to a multitude of market triggers favoring gold and working against the equity market. They point to geopolitical tensions in Southeast Asia, economic uncertainty in the US and European countries, and significant gold buying by major central banks, particularly China, as the primary reasons for gold's outperformance of the Indian stock market indices.

Triggers for gold price rally

Speaking on the gold price rally from January to June 2024, Sugandha Sachdeva, Founder of SS WealthStreet said, "Gold has remained one of the preferred assets in 2024, wherein it has delivered impressive returns of around 13 percent in the first half of the year. Various factors have led gold prices to new record highs of ₹74,442 per 10gm mark during the second quarter before some profit booking led to a cool-off in prices. This strong performance has attracted investors looking for both capital appreciation and a safe-haven asset in uncertain times."

The SS WealthStreet expert said that geopolitical tensions in the Middle East, expectations of monetary easing by the US Fed in the second half of the year, central banks ramping up gold reserves, robust Chinese retail demand, and rising US debt contributed to this substantial advance in the precious metal.

Factors that helped gold dominate equity returns

Asked about the primary reasons that helped gold to outperform frontline Indian indices in H-1CY24, Anuj Gupta, Head of Commodity & Currency at HDFC Securities, said, “It's true that both assets are following each other for long as US Fed rate cut is the major trigger that investors of both assets are eagerly waiting for. However, other factors were instrumental in these assets' price rise or correction. While it worked in favour of gold, it went against the equities. Iran-Israel tension in South East Asia, Chinese and other major central banks buying gold, and economic uncertainty in the US and European countries are the major three reasons that enabled gold prices to outshine the Indian stock market.”

Gold price outlook in H-2CY24

"As we move into the year's second half, we may see some initial dips in gold prices. However, as the year progresses, gold looks poised to soar even higher and test new record highs. Prices are just witnessing a corrective rally, but the variables that provided a strong thrust to gold in the first half of the year remain largely unchanged, suggesting that the structural bull run in gold continues," said Sugandha Sachdeva.

“Looking ahead, we anticipate a potential floor for gold prices around ₹67,800 to ₹68,250 per 10 gm zone (closing basis). On the higher side, prices could target the ₹80,000 per 10 gm mark or the $2,680 per ounce mark towards the end of the year. Buying gold as a strategic investment in a staggered manner on dips toward the mentioned support levels could enhance returns from a long-term perspective. After a brief period of consolidation, the factors outlined above could collectively contribute to rising gold prices in 2024, reflecting a mix of economic, geopolitical, and monetary dynamics that influence investor behaviour and market trends,” Sugandha concluded.

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