After a glittery rally, gold may be about to make way for stocks

With the precious metal already delivering returns as high as 25% in the first four months of 2025, experts believe there is limited room for significant upside, especially as global uncertainties begin to wane. This likely explains why domestic gold exchange traded fund (ETF) redemptions reached a one-year high last month.

Also read: Banks' Q4 earnings hit an 8-quarter high. But that's not driven by loans

Moreover, gold has remained under pressure lately, with prices being very volatile in the last three to four weeks. Going forward, Kaynat Chainwala, associate vice-president of commodity research at Kotak Securities, anticipates a 7-8% correction in gold prices in the short term, driven by easing US-China trade tensions.

“However, gold prices still have room for improvement with eventual (US) rate cuts on the horizon and continuous central bank buying. Till then, gold can find a key support at the $3080 per ounce level," she said.

But gold’s geopolitical risk premium is beginning to fade as the ongoing US-China trade negotiations have shown significant progress, noted Apurva Sheth, head of market perspectives and research at Samco Securities.

Also read: Early birds report of a steady yet muted Q4

Last week, the US agreed to cut duties on Chinese exports to 30% from 145% for 90 days, while China reduced its tariffs on US goods to 10% from 125% for the same period, signalling an intent to de-escalate and move towards a structured trade agreement.

“This has reduced the need for investors to seek shelter in traditional safe-haven assets like gold," Seth added.

In fact, during the latest Mint quarterly market survey, Jay Kothari, lead equity strategist at DSP Mutual Fund, noted that the best way to play gold from hereon is through gold-related equities.

Uncertainty’s gold

Uncertainty defined FY25, marked by shifting policies and global tensions. Gold capitalized on this instability, outshining other asset classes.

To be sure, gold returned around 27% in 2024, outperforming every other asset class and marking its ninth consecutive annual gain last year. A couple of ongoing wars, relentless central bank buying – for diversifying reserves and reducing reliance on the US dollar – and a weakening global outlook drew investors to gold, as they faced a spate of uncertainties in the near term.

US president Donald Trump’s tariff tantrums and the recent rout in the US currency and treasury market further increased the appeal for gold as the only reliable safe haven asset, further fuelling its rally in 2025.

 

In India, gold prices touched an all-time high of ₹100,000 per 10g in the retail market last month. The surge in demand for the yellow metal reached a 15-year high in 2024, fuelling its meteoric price rise.

Gold demand in the country reached 4,974 tonnes in 2024, mainly driven by jewellery and investment demand, which accounted for 40% and 24% of total gold demand respectively, according to the latest NSE Market Pulse report.

Also read: What the market crystal ball sees for the next 3 months

While total demand rose 0.6% on a year-on-year basis, albeit on a high base, demand for gold investment rose the highest at almost 25% during the same period.

Equities turn?

But how long will this heightened investment demand for gold endure? A recent Motilal Oswal Financial Services report highlighted that with domestic equities underperforming, the gold price to Nifty-50 index ratio has already breached its historical median and is now nearing its FY16 peak of 4.2x. 

Historically, such levels have suggested a higher probability of equities outperforming gold in the future. Could a sustained recovery in equities alter this dynamic?

In fact, even though gold has outperformed domestic equities in a one to three-year timeframe, from a very long-term perspective, equites have historically delivered superior returns. Hence, experts are advising caution in investing in gold going forward.

“Investors should invest in a staggered manner as and when gold (prices) falls from here on, instead of going all in. While existing uncertainty around US’s trade deals will support gold prices for the next few months, we are expecting a consolidation phase in the near term," said Pranav Mer, vice-president of the equity broking group's commodity and currency research team at JM Financial Services.

MCX Gold is likely to consolidate in a range of ₹91,542 to ₹93,034, which is at a 50-62% retracement level of the recent rally from ₹86,710 to ₹99,358, noted Seth from Samco Securities.

On booking profits, Mer from JM Financial Services suggested that investors should book profits whenever gold rallies from current levels. In fact, investors began redeeming in March, with gold ETFs seeing their first net outflows in over a year that month. In April, however, redemptions reached a one-year peak at ₹ 1,669 crore.