Gold-Nifty ratio today: Can bulls initiate bottom fishing without waiting for stock market bottom?

Gold prices traded lower on Monday as investors booked profits at record-high levels, while Indian stock market benchmark indices, Sensex and Nifty 50, rebounded amid short-covering at lower levels.

MCX Gold recently hit an all-time high of ₹88,310 per 10 grams, but profit-taking has led to some cooling in prices. Meanwhile, Nifty 50 witnessed a recovery but remains nearly 15% below its peak, keeping investors cautious about the market’s next move.

The Nifty-to-Gold ratio currently hovers around 2.75, indicating that one needs 2.75 grams of gold to purchase one unit of Nifty 50. Historically, market analysts consider a Gold-to-Nifty ratio within the 2.50 to 2.75 range as a potential entry point for bullish investors looking to capitalize on bottom fishing strategies.

According to Anshul Jain, Head of Research at Lakshmishree Investment and Securities, the stock market’s unpredictable nature makes timing the bottom difficult. However, investors can rely on fundamental indicators to initiate momentum buying rather than waiting for a clear bottoming-out signal.

“One can follow the basics and initiate momentum buying in the current cautious-to-positive market,” Jain said.

Gold Price Fundamentals

The fundamentals for gold prices remain strong, driven by global economic uncertainty and inflationary pressures. However, demand for physical gold and gold jewellery has declined due to the recent surge in gold prices. Despite this, gold merchants have been offering discounts to balance the demand-supply equation.

Anuj Gupta, Head of Commodity & Currency at HDFC Securities, noted that gold prices have risen by nearly 15% year-to-date (YTD), benefiting merchants holding buffer stocks. “This could act as a taper for the gold price rally, prompting investors to diversify their portfolios by shifting towards equity assets,” he stated.

Implications for Stock Market Investors

With the Nifty-to-Gold ratio at a historically favorable level for equity investments, investors looking for strategic entry points might consider rebalancing their portfolios. While global market volatility remains a concern, the current levels could encourage long-term investors to start accumulating equity assets rather than waiting for a definitive market bottom.

For Indian stock market investors, experts believe that a cautious yet strategic approach to equity investments, backed by technical and fundamental analysis, could yield favorable results for market participants.

While predicting a market bottom remains a challenge, historical data suggests that the present Nifty-to-Gold ratio offers an opportunity for bulls to enter the market. With gold prices stabilizing and the equity market showing signs of cautious optimism, investors may consider gradual accumulation rather than waiting for absolute lows in the market.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.