Stocks overshadow gold's glitter with strong rally

Gold has been glittering bright for investors for many years, but the year 2012 saw Indian equities overshadow the yellow metal's sheen with returns of more than 25 per cent.

According to market experts, 2011 was very tough for the equity markets and the gains seen in 2012 are mainly because of a pullback rally towards the end on the back of factors like strong foreign fund inflow and reforms push, among

others.

After outperforming the stock market for more than a decade, the appreciation in gold prices in the year passing-by as been lower than that of the Indian equities.

An analysis of gold prices and stock market movements shows that the BSE benchmark index Sensex rose by over 25 per cent this year, which was nearly double the gain of about 12.95 per cent in gold prices.

The appreciation in another precious metal, silver has also been almost similar at about 12.84 per in 2012.

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The stock markets' out-performance over the bullion market in 2012 shows a reversal of trends seen in the previous years.

While the stock market plunged about 25 per cent in 2011, gold had turned out to be the best asset class with 32 per cent surge during that period. The silver prices had also ended last year with a gain of about 8 per cent.

Historical data show that gold has given positive returns over the last 12 out of last 15 years. Also, gold prices have appreciated by an average of 20 per cent over the last 10 years, against about 18 per cent for equities.

Macroeconomic headwinds on the global and domestic front and concerns over policy reforms and currency fluctuation were some of the major factors that resulted in volatile and uncertain market conditions through 2011.  

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Market observers say gold outperforms equity when investors buy the yellow metal as safe hedge when equity markets are weak.

"Whenever stock market goes up, gold comparatively falls. It does not rise that much when the stock markets are gaining. Whenever markets fall, gold generally rises. In times of fear and panic, money moves into gold," Religare Securities' EVP and Retail Research Head Rajesh Jain said.

Gold is normally preferred as a hedge against inflation, and investors tend to park their money in gold as they consider it a safe bet in times of market uncertainties.

Marketmen have expressed optimism on the outlook for the Indian stocks market in 2013.

"We see 13-15 per cent upside in Indian equities. This translates into Sensex target of 22,000-22,500 over the next 12 months," Vinay Khattar, Head Research (Individual Clients), Edelweiss Financial Services said.

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The Sensex has gained 25 per cent so far this year, while Nifty rose by 26.5 per cent per cent.

In comparison, gold prices increased by 12.95 per cent and silver by 12.84 per cent so far this year.

The stock market segment mid-cap and small-cap indices have appreciated by about 40 per cent and 35 per cent, respectively.

The smart recovery in the stock market helped investor wealth soar by over Rs 14.5 lakh crore this year.

Gold prices in India rose from about Rs 27,640 to Rs 31,220 per 10 gm during 2012, while silver rallied from about Rs 51,400 per kg to Rs 58,000 a kg.

Although gold in the international market could not surpass its all-time record registered in September last year, the yellow metal in domestic market logged its all-time peak this year.

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Gold prices breached the psychological Rs 30,000 level this year to hit an intra-trade historical high of Rs 32,530 in November.

This was due to, among other things, fall in rupee value, experts said. "World markets are stabilising, developed economies are on a strong foothold with incremental crisis that have been coming in being well countered.

"Also, the economy is recovering a bit in the US and Europe. These factors have boosted the confidence of equity market worldwide. Once you see confidence in equity market, sheen on gold is taken away slightly," Ashika Stock Brokers, Research Head, Paras Bothra said.

According to Bothra, rally in gold was more pronounced in the last two-three years. Post 2008, people took to gold holding in a big way as the financial crisis was so deep that it shook the fundamentals of most of the economies, he said.