Despite beating other assets during the year, gold's year-to-date (YTD) return failed to outperform the stock market's return in 2023. Thanks to the recent Santa rally ahead of Christmas, the Nifty 50 index rose 8.50% in the last month, bringing the 50-stock index's YTD return to nearly 18%. Though the precious yellow metal has seen significant buying activity in the previous month, its month-to-date (MTD) return is only about 3%. However, a YTD return of 13% is significantly higher than risk-free alternatives such as bank FD (fixed deposit), public provident fund (PPF), and other government-backed small saving programmes
According to commodity market experts, the US banking crisis, geopolitical crises, and the US Fed's rate pause posture were among the key catalysts that helped gold remain an investor's haven throughout the year. They predicted that gold prices will continue to rise as the US Federal Reserve signaled the end of the high interest rate cycle by cutting interest rates three times in 2024.
Gold versus the stock market
"Gold proved its timeless allure in 2023, reaching a record high of Rs. 64,460 per 10gm and outshining major indices like Nifty and Sensex for most of the year," market expert Sugandha Sachdeva said. Prices surpassed the previous high of around $2081 per ounce, moving into unknown territory near $2,148 per ounce. Though the Nifty edged ahead with an 18% year-to-date gain by the end of the year, gold remained robust and posted a respectable near 13% return."
Amit Goel, Co-founder & Chief Global Strategist at Pace 360, explained why gold outperformed most other assets in 2023, saying, "With the exception of the recent Santa rally on Dalal Street following the US Fed's signal to cut interest rates three times in 2023, gold has outperformed the Nifty 50 index and most other global equity indices in CY 2023." Investors have been buying gold this year due to concerns about an impending slowdown, which would undoubtedly propel gold to far higher levels. Central bank purchases of gold totaling 800 metric tonnes this year have also been significant."
"Over the past two decades, Nifty, representing the Indian stock market, and gold have exhibited distinct performance trends," Narinder Wadhwa, National President at CPAI, stated, advising stock market investors to have some exposure in gold as well. The comparison shows the disparate character of these assets across the selected time period. The Nifty 50 index has provided a 14 percent CAGR over the last ten years and a 14.9% CAGR over the last twenty years, while gold has returned an average of 11.2 percent over the same period."
"Investing in gold is an inflation hedge, whereas Nifty returns reflect the cyclical nature of the stock market, which is influenced by economic indicators, corporate earnings, and global market dynamics." Bullish trends were frequently followed by corrections or bearish phases," Wadhwa explained.
Gold Triggers in 2023
"We believe that the US banking crisis in early 2023, global economic slowdown, and geopolitical tension are some of the major reasons that have helped Gold and Silver outperform stock market returns globally by a wide margin, with the exception of a few countries such as India." Despite the Fed's continuing rate hikes and rising bond yields, gold prices rose due to concerns about a worldwide economic slowdown. Furthermore, the recent geopolitical war between Israel and Hamas has exacerbated market volatility, making gold the favoured asset class due to its intrinsic stability during times of crisis," stated Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio.
Sugandha Sachdeva identified the five factors that enabled gold to offer a massive return to investors in 2023:
1] Safe haven appeal: The year began with the US banking crisis, prompting risk-averse investors to seek refuge in gold.
2] Geopolitical tensions: Even though prices fell in the second and third quarters, the conflict between Israel and Hamas in the fourth quarter reignited demand for gold as a store of value.
3] A dovish Fed and a weakening dollar: The Fed's shift towards likely rate cuts in 2024 has devalued the currency, boosting gold's appeal.
4] Central bank appetite: Central banks' strategic gold purchases in huge numbers added to the increasing pressure.
5] Strong festive demand: During the Indian festive season, gold demand was strong in Q4.
Gold Price Forecast
"The trend looks positive for the week ahead, but investors should be aware of potential headwinds, where the level of 62,800 per 10 gm remains a supply wall." A breach of the same could result in additional buying, pushing prices up to 63,500 per 10 gm. However, current market risk-on sentiments may favor risky assets, potentially prompting some consolidation in gold prices. Furthermore, a recovery in the greenback might take some of the luster off the yellow metal, which has support near 61,200 to 60,700 per 10 gm," said Sugandha Sachdeva.
