The year 2024 has seen remarkable performance in the gold market, with prices reaching new heights exceeding Rs 73,000 per 10 grams on the MCX. This surge reflects a year-to-date increase of over 10%, outpacing the performance of the Nifty index.
The bullish trend in gold prices is driven by various factors, prominently including heightened global tensions and substantial central bank acquisitions worldwide. Ongoing geopolitical risks arising from conflicts involving Ukraine and Russia, as well as Iran and Israel, have heightened demand for gold as a safe-haven asset.
Global central banks, notably those of the US, China, and India, have significantly increased their gold reserves, contributing to the market rally. According to Deveya Gaglani, Research Analyst-Commodities at brokerage Axis Securities, this rally is fundamentally supported and not indicative of a speculative bubble. Gaglani notes that despite geopolitical factors, the compound annual growth rate (CAGR) of gold returns over the past six years stands at around 15%. The persistence of strong buying pressure is evident from the resilience of gold prices against US inflation and non-farm payroll data.
While the current environment favors continued momentum in gold prices, close monitoring of geopolitical developments and central bank policies remains crucial. Analysts anticipate that as long as these risks persist, the upward trend in gold prices will likely continue. Jateen Trivedi, VP of Research at LKP Securities, suggests that despite the robust rally, concerns about a potential gold market bubble persist. Trivedi warns that if geopolitical tensions ease, gold prices could undergo a significant correction.
In navigating this landscape, diversification and risk management strategies are essential. Adhil Shetty, CEO of fintech firm BankBazaar.com, advises caution for investors without deep insights into the gold market. Shetty recommends restricting gold investments to not more than 5% of one’s investment portfolio, emphasizing prudent risk management practices.
