Gold has emerged as one of the best-performing assets in 2024, witnessing a meteoric rise of around 28% year-to-date in dollar terms. Gold has gained 17% year-to-date in domestic markets while testing a new milestone of Rs.76000 per 10 gm during the week. The rally in Gold reflects the complex mix of geopolitical risks, monetary policy shifts, and economic concerns that have influenced investor behaviour throughout 2024.
Asked about the top five reasons that helped gold prices to outperform Nifty 50, Sensex, and Nifty Bank returns, Sugandha Sachdeva of S.S. Wealth Street listed out the following five reasons:
1] Geopolitical tensions: Escalating conflicts, particularly in the Middle East region and the ongoing Russia-Ukraine war, have heightened global uncertainties. Amid geopolitical instability, investors flock to safe-haven assets like Gold to protect their wealth, pushing demand and prices.
2] U.S. Fed monetary easing cycle: The U.S. Federal Reserve recently slashed borrowing costs by 50 bps. The U.S. dollar has weakened as global markets anticipate further cuts, potentially totalling an additional 75bps by the end of the year. A softer dollar enhances the appeal of Gold, which becomes more attractive as a store of value in a low-interest-rate environment. China’s recent stimulus measures have only added to this momentum, fueling Gold’s rise.
3] Gold purchases by central banks: Central banks, especially in emerging markets, have ramped up gold purchases to reduce dependence on the U.S. dollar. These large-scale purchases have provided a steady support base for Gold, reinforcing its upward momentum throughout the year.
4] Surge in gold ETFs holdings: Investor interest in gold exchange-traded funds (ETFs) has rebounded strongly, with significant inflows over the past four months. Global gold ETF holdings grew by $2.1 billion in August, bolstering the metal’s rally as ETFs increase physical gold holdings to meet rising demand.
5] Rising US debt, economic concerns: The U.S. national debt has soared to a record $34 trillion, intensifying concerns about fiscal sustainability. With the cost of debt servicing rising due to high interest rates, fears of economic instability and currency devaluation have driven more investors to Gold as a hedge against uncertainty.
