Gold vs Nifty: Which one should you chase after Budget?
gold prices have shown ferocious moves compared to equities. Investors and traders need to be calculative while making investment decisions at this time.
Gold had given 16% return in year-to-date 19 July 2024, compared to the 14% return given by the Nifty 50 index – the most widely tracked gauge of stock market performance. However, Union Finance Minister Nirmala Sitharaman announced a sharp cut in import duties to 6% from 15% earlier on gold, in Union Budget 2024. This pulled down the price of yellow metal. Compared to Rs 72,718 per 10 gram on MCX on 22 July 2024 the gold prices went down to Rs 68,510 by end of 23 July 2024 – the day of budget announcements, and then went to hit a low of Rs 67,462. Equities on the other hand tanked for a while due to increase in taxation of capital gains, but quickly recovered to go higher. These price gyrations baffled many investors. A look at the drivers of price change however should help to take a more informed decision.
The surge in gold prices is an outcome of increased safe haven demand on the backdrop of geo-political tensions. Market participants are anticipating a cut in interest rates by the US Federal Reserve. Lower interest rates are favourable for gold prices. Another key reason for the surge in gold prices is sustained buying by central banks looking to diversify away from the US Dollar. After buying 1037 tonnes of gold in CY2023, central banks have continued their buying trend in CY2024, with net purchases of 290 tonnes in the first quarter.
Going forward, gold
