InvestorQ : Why is gold price consistently taking a hit in the Indian market even as Nifty is at a high?
Dhwani Mehta made post

Why is gold price consistently taking a hit in the Indian market even as Nifty is at a high?

Dilmini Mercia answered.
3 years ago

The ironic factor about gold is that it only does well when all the other assets are doing badly. For example, in the period post the global financial crisis or after the European crisis, gold did extremely well. Even in 2020 post COVID, gold did extremely well. That momentum appears to be waning for gold.

The reason is simple. Good economy has always been bad for gold, which has had an amazing run in the last one year in the midst of the pandemic driven uncertainty. Gold prices gained around 35% in a single year but it has dropped below the previous peak of 2011 in the month of November.

Gold actually dropped to a 5-month low of $1773/oz making November the worst month in 4 years. The last time that gold had such a bad year was in the aftermath of the bounce in 2016 post the Union Budget which created a long term bottom for the market.

There is one more factor that is going against gold performance. The optimism over a swift vaccine-fuelled economic recovery dented the allure of safe havens like gold. Markets are expecting that a revival in growth could be the first outcome of the vaccine and that is not great news for gold.

Globally, investors were seen to be abandoning gold because the vaccine could open up the markets in a big way. If growth comes back, people would still bet on equities as they have been doing since April this year. Gold also took a knock after data showed China factory activity expanding at the fastest pace in more than three years in November.

The overall impact has been that it has triggering risk-on sentiments which are also visible in the extent of FPI flows into India in the month of November. In fact, FPIs infused close to $8 billion in the month of November into equities.