Gold’s 13% Surge Outpaces Nifty: Who Will Lead in H2 2024?

The first half of 2024 witnessed a significant shift in investor sentiment, with gold emerging as a clear winner compared to the stock market. While the benchmark Nifty 50 index delivered modest gains at 10.5%, gold prices surged by 13.37%. 

In rupee terms, the MCX gold contract has gained nearly Rs 8,400 per 10 grams, while the Sensex surged 2,279 points by June 30, 2024. Summarizing the Nifty’s performance over the first six months, the period was marked by significant volatility. Despite this, it rewarded investors who remained patient and disciplined enough to capitalize on the opportunities.

A historical comparison of gold’s first-half performance and the Nifty’s over the previous five years gives gold an edge. From 2019 to 2023, gold’s returns were positive in four years, with the highest returns in 2020 (13.71%) and the lowest in 2022 (0.59%). It posted negative returns of 3.63% in 2021.

According to industry experts, gold has been consolidating around Rs 71,000-72,000 after rallying 18% to hit record highs between February and April, appreciating Rs 12,000 per 10 grams. The July futures peaked at a lifetime high of Rs 74,777 and are now hovering near Rs 71,8000. Middle East tensions, a Chinese rush for this metal, and hopes of Fed rate cuts have driven these gains.

Let’s look at some more factors driving gold’s strong performance. 

Factors Propelling Gold’s Rise in H1 CY2024

Several factors have contributed to gold’s strong performance in the first half of 2024:

• Geopolitical Tensions: The ongoing geopolitical tensions surrounding the ongoing conflicts and potential future disruptions have stoked investor anxieties, pushing them towards safe-haven assets like gold.
• Monetary Policy Uncertainty: Central banks like the US Federal Reserve’s anticipated tightening of monetary policy has created some uncertainty in the stock market, leading some investors to seek refuge in gold.
• Lower Interest Rates: While interest rates are expected to rise, they are still relatively low compared to historical averages. This makes non-interest-bearing assets like gold more attractive to some investors.
• Weakening Dollar: A weaker US dollar can make gold more affordable for investors holding other currencies.

In contrast, the Nifty has posted positive returns thrice in the first half of 2019, 2021, and 2023. It achieved its highest returns, over 12%, in 2022 within the five-year period from 2019 to 2023. However, in 2020, the Nifty’s levels dropped by 15% due to the COVID-19 lockdowns in March. In the first half of 2022, the Nifty lost 9%.

Factors that impacted the markets

1. Lok Sabha Election Results:
   • The election results did not meet market expectations, leading to market fluctuations. Investors and market participants had anticipated a clear majority for the Modi government, which did not materialize. This unexpected outcome led to increased market volatility.
2. Global Cues:
   • Mixed signals from the global market contributed to uncertainty and volatility.
3. Domestic Macroeconomic Indicators:
   • Positive domestic macroeconomic indicators provided some support to the markets.
4. Middle East Tensions:
   • Ongoing tensions in the Middle East added to the market instability.
5. US Federal Bank’s Interest Rate Policy:
   • Diminishing hopes of multiple rate cuts by the US Federal Reserve in 2024 influenced market sentiment.

The Road Ahead

Predicting the future performance of any asset class is inherently challenging. However, by examining key factors, we can make an informed assessment of the potential drivers for the yellow metal and stocks in the second half of 2024.

Gold’s Potential Drivers:

• Geopolitical Landscape: The evolution of geopolitical tensions will significantly impact investor sentiment. Continued instability could bolster the metal’s appeal as a safe haven.
• Inflationary Trajectory: If inflationary pressures persist or worsen, it could lead to further inflows into this metal as a hedge.
• Monetary Policy Decisions: The pace and extent of central bank interest rate hikes will be closely watched. Aggressive rate hikes could dampen gold’s price, while a more measured approach could allow it to maintain its gains.
• Investor Sentiment: Shifts in investor risk appetite can significantly influence its prices. Increased risk aversion could benefit this metal, whereas a return to optimism could lead to profit-taking and a price correction.

Challenges for Gold:

• Interest Rate Hikes: If central banks raise interest rates aggressively, the opportunity cost of holding non-interest-bearing assets like the yellow metal could increase, potentially leading to a price decline.
• Economic Recovery: A robust economic recovery could dampen the demand for such safe assets.
• Strengthening Dollar: A US dollar trend reversal could make this metal more expensive for investors holding other currencies.

Stock Market Outlook:

The prospects for the Indian stock market in the second half  also depend on several factors:

• Corporate Earnings Growth: Healthy corporate earnings growth can support the stock market rally.
• Economic Growth: The pace of economic growth in India will be a key determinant of investor sentiment.
• Global Market Performance: The performance of global stock markets can also influence the domestic market.
• Interest Rate Environment: While rising interest rates can dampen stock prices in the short term, a stable interest rate environment can be conducive to long-term growth.
• Investor Risk Appetite: Investor risk appetite will be crucial. A bullish sentiment can fuel a stock market rally, while risk aversion might lead to a pullback.

Experts believe the metal will hit Rs 70,000 in the next 1-2 months due to weak fundamentals and technicals. However, the outlook remains positive from a medium to long-term perspective, with expectations that it will reach new record highs in the last quarter of 2024.

Analysts are optimistic that the Nifty will reach 25,600 by year-end. They suggest focusing on the technology sector, particularly companies specializing in AI and cloud computing, and the FMCG sector, which is driven by consumer spending and economic recovery.

Investors seeking to hedge against inflation or market volatility may consider incorporating this mentality into their portfolios through various options, such as physical gold, ETFs, or mining companies.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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