Nifty and Sensex gains so far this year have been to the tune of 12%.
Gold’s returns are also higher vis-à-vis fixed deposits (6%) and bonds (7-8%), said Jateen Trivedi of LKP Securities. It has also surpassed a target of Rs 75,000 given by the Vice President and Commodity & Currency research analyst.
Gold prices are poised to end the year with a hefty gain of more than 20% in the domestic market and nearly 27% in the international market – its third consecutive year of positive close, Pranav Mer, Vice President, EBG – Commodity & Currency Research, JM Financial Services said, as he called it a “niche” asset class while refusing to be drawn into comparisons with other asset classes.
Mer said that this bullion metal has remained in the top 3 commodities along with natural gas and silver. Gold has outperformed his return expectations of 12-14% in CY24.
The continuing uptick in the gold prices for the last seven quarters has been stimulated by the evolving global economic and geopolitical scenario, and rising investment demand for gold, ICRA said in a note, adding that the average gold price has risen by a sharp 25% this fiscal year vis-à-vis FY2024 average price, despite occasional corrections. A look into previous five years’ performance of gold reveals that the yellow metal has delivered nearly 15% returns in 2023 while giving 14.38% in 2022. In 2019 and 2020, gold prices surged by 24.59% and 28.24% while in 2021 they fell by Rs 4.09%.
CY2024 low points
There were two major events that impacted gold’s appeal negatively. One was a cut in the customs duty on gold and silver to 6% in the July Budget 2024 leading to a fall of 6% (Rs 4,268 per 10 gm) intraday while silver tanked by 5.5%.
The other is the US election result, which has led to the strength in the dollar index (DXY). In the last one month, the greenback has appreciated by 6.3% against a basket of six major currencies. It is currently hovering near the 107 mark.
Gold February contract on the MCS is currently down 4% from its all-time high of Rs 80,282 per 10 gram.
Gold Demand
The demand for gold remains robust. In November gold imports surged to $14.86 billion from $7 billion in October witnessing a month-on-month rise of 112%.
ICRA expects the domestic gold jewellery consumption (in value terms) to continue its momentum in the current fiscal with an estimated growth of 14-18% YoY. This follows the sharp growth of 18% in FY2024, which was primarily driven by realisations even as volume growth was subdued.
Outlook
Gold will be up against three major events in the first two months in 2025 and experts point out the likelihood of volatility. First will be Donald Trump taking charge as the US President and we have seen how DXY and bond yields have moved. The other two factors are domestic – one is the Union Budget 2025 and the other is the Reserve Bank of India (RBI) MPC under a new Governor.
While Trump’s presence will add to global uncertainties aiding gold, a stronger dollar could take away some sheen, said Anuj Gupta, Head Commodity & Currency at HDFC Securities.
The other major challenge comes from cryptocurrencies, which have reignited investors’ appetite for these instruments this year, especially after Trump’s election victory. Bitcoin has breached the $1,00,000 mark witnessing a surge of 140% this year so far, and platforms like CoinDesk expect a Santa Claus rally, estimating BTC to hit the $1,20,000 target.
Gupta sees investment shifting away from gold to BTC calling it negative for the yellow metal.
The HDFC Securities analyst estimates gold to hit a target of Rs 82,000 in 2025 with strong resistance at Rs 84,500.
“We believe gold still has the potential to deliver attractive returns based on the substantial central bank buying and strong rebounds in ETF inflows, both of which are likely to persist. Under the US presidency of Donald Trump, we anticipate an increase in economic uncertainty due to tariff plans, which will continue to drive haven flows towards gold,” Gupta said.
Trivedi of LKP Securities sees gold trading in the range of Rs 82,000-85,000.
Meanwhile, Mer sees bullion to test levels of $2,900-$3,000 in the international market and around Rs 84,000-Rs 85,000 in the Indian market. His return expectations remain around 5-7% for the year ahead. (Last para)
He echoed Gupta’s assertions of cryptos getting more traction initially, but opined that bullion would get support as a traditional hedge.
Trivedi feels Bitcoin’s rise could divert some speculative funds but is unlikely to make significant impact given its highly volatile and unregulated nature.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
