Tuesday, October 29, marks the occasion of Dhanteras, or Dhanatrayodashi. It’s the first day that marks the beginning of Diwali celebrations across most parts of India. Traditionally, it has been considered auspicious to buy gold, silver or jewellery on this day. This year, though, high prices of gold are weighing on sentiments. Should you still buy gold this year? Will gold price continue to go up?
Gold has delivered stellar returns over the past one year. Deveya Gaglani, research analyst – commodities, Axis Securities, pointed that spot gold price is up 33 per cent, its best year-to-date performance since 2007.
Price compared to the last Dhanteras is up over 25 per cent. In comparison, gold gained 20 per cent from Dhanteras 2022 to 2023 and 10 per cent a year earlier. On the MCX, gold for December 5 expiry traded at over Rs 78,800 per 10gm on Tuesday.
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Gold price was around Rs 27,000 in 2014, and has, over the 10-year period, delivered a compounded annual growth of around 7-9 per cent, according to Ventura Securities.
What’s making gold shine brighter?
Heightened geopolitical tensions in West Asia and the continued conflict between Russia and Ukraine have been the main reasons for rise in demand for gold around the world. There is also the looming presidential election in the United States, which is also fuelling uncertainty. Typically, in times of uncertainty, investors turn to the safety of a safe haven asset like gold.
The US Federal Reserve slashed interest rate by an outsized 50 basis points in September. The Fed’s first rate cut in over four years, has also boosted appeal of the yellow metal.
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India imports much of its gold. Rupee’s depreciation to the US dollar then also also weighs on prices in the local market.
Global central banks, including Reserve Bank of India, continuing to buy gold too has had an impact on gold. According to Ventura Securities, over January-March to July-September 2023 global central banks bought roughly 800 tonnes of gold. Further, from the October-December quarter of 2023 to the April-June quarter of 2024, they have added 694 tonnes of gold, it added.
“Major central banks are hoarding gold reserves to diversify their holdings. China has emerged as the top central bank accumulating gold reserves since 2022, with their official holdings reaching a record 2,262 tonnes,” added Gaglani of Axis Securities.
Will gold continue to rise?
Indians mostly buy gold in the form of jewellery for special occasions like Diwali or wedding and other ceremonies. Over the last few years, gold as an investment too has gained ground, with purchases in the form of sovereign gold bonds, gold mutual funds and Exchange Traded Funds and digital gold, other than bars and coin and jewellery. After the rally over the past year, many would be wondering if it will continue to shine as brightly or maybe even more.
Tapan Patel, fund manager – commodities at Tata Asset Management, feels that investment in gold is one way to secure financial future and diversification over other high-risk investments.
“The recent surge in the prices was a momentum play following escalation in Middle East conflict with Israel preparing to act on Iran’s missile attack. The US Fed interest rate cut, central banks gold buying, upcoming US election and geopolitical risk are continuing to remain the key supportive factors for bullion prices. Investors may look for accumulation on any decline in the prices. The current market environment could be favourable for a strategic allocation in gold as an investment in portfolio,” he said.
Gaglani of Axis Securities says bullion will rise in 2025 on the back of geopolitical tensions, strong demand from China and rate cuts by the US Fed.
“These factors, combined with a potential economic slowdown, could create a favourable environment for higher gold prices next year,” he said.
While he finds gold currently in “overbought territory”, he feels investors could consider buying gold in a “staggered manner” between Rs 72,000 and Rs 75,000. He sees gold at Rs 85,000 by the next Dhanteras.
Growing US fiscal pressure is another reason that could drive gold demand, noted Ventura Securities.
“The US national debt is expected to reach unprecedented levels in the next three years, and interest payments on this debt are likely to increase as a share of GDP. If markets struggle to absorb the increasing debt issuance, volatility could rise, further supporting demand for gold,” it said.
According to the broking firm, gold could see levels of Rs 79,000 to Rs 81,800 and Rs 84,600 to Rs 85,700 per 10gm.
“Gold remains a perfect hedge against volatility in stock markets and uncertainty across the world, although not aiming at a superlative return by going overboard,” it said.
Gold is perennially used as a tactical 10-12 per cent allocation in a portfolio, irrespective of the price levels, it added.
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