Why MCX gold rate outperformed Nifty 50, Sensex, Bank Nifty in YTD? Explained with 5 crucial reasons

Gold rate today: Entering Christmas 2024, investors scrutinise their returns from different assets. It will be interesting for such investors to know that gold prices have outperformed key benchmark indices of the Indian stock market by a considerable margin. While the Nifty 50 index rallied around 8.50 per cent in YTD, the BSE Sensex has delivered an 8 per cent return. However, to surprise stock market investors, the Nifty Bank index has given a paltry 5.25 per cent return in 2024. In contrast, the MCX gold rate has risen around 21 per cent in YTD while the spot gold price has surged nearly 27 per cent this year.

According to stock market experts, US Fed rate cut buzz, geopolitical tension, gold buying by the majority of the central banks, rising demand by investors and Escalation in the trade war after Donald Trump’s re-entry into the White House are some of the significant reasons that fueled stock market crash at higher levels and accelerated gold prices in 2024. They said that Gold is expected to remain a hedge against inflation next year but will have to compete against the US Treasury yields, the FOREX market, and some virtual assets like Bitcoins. They said that the Trump factor would be the significant trigger next year for both equities and Gold as the trade war is expected to escalate in 2025.

Speaking on the reasons that fueled gold prices this year, Anuj Gupta, Head — Commodity & Currency at HDFC Securities, said, “MCX gold outshined other regulated assets by a huge margin in 2024 due to various reasons which includes US Fed rate cut buzz, geopolitical crisis, gold buying by majority of the central banks, rising demand for electronic and physical Gold, Escalation in trade war after Donal Trump’s victory in the US Presidential Election. While these factors favoured the yellow metal, it was against the equity market. The recent stock market crash is a glaring example of it.”

“A confluence of macroeconomic, geopolitical, and investment-related factors has driven Gold’s performance in 2024. With such strong tailwinds, Gold has solidified its position as a standout asset in the portfolios of both individual and institutional investors. Gold reached an all-time high of $2,790/oz in international markets, while in domestic markets, it soared to a record Rs.79,775/10gm. With returns of around 27 per cent in international markets and more than 20 per cent (20.91 per cent) in domestic markets, Gold outperformed most asset classes, including equities. The benchmark Nifty index, which touched record highs of 26,277 mark in September, has risen 8.5% year-to-date,” said Sugandha Sachdeva, Founder of SS WealthStreet.

How did gold prices outshine the stock market?

Asked about the key factors that enabled gold prices to outperform the Nifty 50, Sensex and Bank Nifty index, Sugandha Sachdeva listed out the following five triggers:

1] US Fed rate cut: The US Federal Reserve’s pivot toward monetary easing amid receding inflationary pressures significantly bolstered gold prices. The anticipated and actual rate cuts fuelled demand for Gold as a non-yielding asset.

2] Geopolitical tension: Persistent global tensions, including the Israel-Hamas conflict, the Russia-Ukraine war, and the fall of the Syrian government, heightened Gold’s appeal as a safe-haven investment.

3] Central Bank’s gold buying: Central banks, especially in emerging markets, continued their robust gold accumulation, purchasing 694 tonnes by Q3 2024. This buying spree mirrored 2022 levels, providing a strong structural tailwind for gold prices.

4] Rising investment demand: Renewed interest in gold-backed ETFs contributed to the price rally. After months of outflows, gold ETFs witnessed net inflows of $2.6 billion year-to-date, reflecting growing investor confidence in the asset.

5] Escalation in trade war: The US national debt has soared to a record $34 trillion, intensifying concerns about fiscal sustainability. This and rising trade war tensions further reinforced gold’sGold’s status as a reliable hedge.

Gold price outlook in 2025

On the outlook for gold prices in 2024, Anuj Gupta of HDFC Securities said, “Gold will continue to remain a hedge against inflation, but it is Donald Trump, whose re-appointment and his approach towards the trade deal in first one year that is going to dominate gold price to a larger extent. However, the US President-elect will certainly ensure the strength of the US economy; hence, the US dollar is expected to remain strong throughout the year. So, Gold will have to face challenges from the US Treasury yields and the FOREX market returns. It must compete against rising demand for non-regulated assets like Bitcoins. However, the trade war is expected to fuel geopolitical tension, and hence, I see a close contest in equities and gold returns in 2025.”

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.