Gold investments poised to shine as equity indices move into unchartered territory

Analysts and traders expect the precious metal to yield better returns during the second half of the year

Gold investments poised to shine as equity indices move into unchartered territory

The Hindu and Jain calendars are marked by a series of religious festivals and auspicious occasions for buying gold, including Akshaya Tritiya (May) and Diwali (November), along with which is expected to fuel purchase of the yellow metal.

What is the outlook?                    

Analysts and traders expect the precious metal to yield better returns during the second half of the year, trading between $1,250 - $1,350 per troy ounce compared to the lacklustre performance earlier this year where spot gold prices declined by 5% to $1,275 per troy ounce from a high of $1,346. 

This was due to the pressure of the Brexit deadline and improved investor sentiment towards riskier asset classes on account of the progress on trade talks between the US and China. The positive trade data coming from the US gave impetus to equity indices and lowered the safe-haven demand investment for gold.

Looking forward, other than the festival fervour, the high valuation of Indian indices and uncertainty over geopolitical events could be crucial for global markets and help gold rally.

Related: Buying gold? 5 things to check before you buy

What are the factors?

 Indian Stock markets: As the Sensex breaches the 39,000 mark, investors are finding the high valuations are little risky with uncertainty over its long-term sustainability. Most investors would look to liquidate the weaker components of the portfolio and reinvest into a stable asset that can act as a hedge against such volatility and also hold the promise of decent returns in case global geopolitical and trade uncertainties increase in the second half.

Upcoming Elections: India is in the middle of parliamentary elections and the US goes out to vote next year. The election results in India, as well as the changes in geopolitical climate, will have a direct impact on traditional investment assets and gold pricing.

Related: A brief history of gold rates in India

Oil: The Iran oil embargo by the US and OPEC output cut will raise the cost of importing oil resulting in a negative impact on the Indian currency against the US Dollar and our equity markets, while gold prices may see a proportionate surge as they usually have an inverse price correlation with the equity markets.

Economic policy: On the one hand, the world cautiously watches how Brexit will play out once the EU's extension to Britain ends on October 31. On the other hand, the dovish stance of the US Federal Bank Reserve and other global central banks does not give out a strong promise of global economic recovery. The US Fed had not made any changes to the monetary policy in over a year.

Related: Commonly asked questions regarding gold loan

What will be the impact on India?

Senior members of the Indian Bullion & Jewellers Association (IBJA) believe that gold will hold on to its sheen in the long run. They attribute the current dip in gold prices to the strengthening of the Indian Rupee versus the US Dollar. However, the escalating oil prices will weaken the Rupee, alternatively firming up the gold prices and making the metal attractive to investors again. Take this quiz to find out whether you are a smart shopper when it comes to buying gold?

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