The stock market seems to have begun 2012 on a brighter note with better returns than the yellow metal in the first quarter of this year.
After outperforming the stock market for more than a decade, the appreciation in gold prices during the first three months of 2012 was lower than that of equities — both in India and in global markets.
An analysis of gold prices and stock market movements shows that the Indian stock market rose about 15 per cent during the first quarter of this year — against a gain of about three per cent in gold prices.
The silver has fared relatively better than gold with about 9 per cent gain, but it still could not match the lustre of stock market rally during this period.
The stocks’ outperformance over the bullion market in the first quarter of 2012 marks a major reversal of trends seen in the previous year.
While the stock market plunged about 25 per cent in 2011, gold had turned out to be the best asset class with a 31-per cent surge. Despite its highly volatile moves, the silver prices had also ended the last year with a gain of about 8 per cent.
Historical data show that gold has given positive returns over the 12 out of last 15 years. Also, gold prices have appreciated by an average 20 per cent over the last 10 years, against about 18 per cent for equities.
Both the Indian benchmark indices Sensex and Nifty have outperformed gold and silver in the first three months of 2012. The Sensex gained 12.68 per cent between January and March, 2012, while Nifty rose 14.7 per cent.
In comparison, gold prices increased 3 per cent and silver by about 8 per cent between January-March 2012.
The gold prices in India rose from about Rs 27,600/10g to near Rs 28,400 during this period, while silver rallied from about Rs 51,100 to Rs 56,200 a kg.
In the global market also, the gold prices have risen by just about 4 per cent, which is lower than most of the major global stock indices.
During this period, the Dow Jones Industrial Average added about 6.6 per cent, Nasdaq 16.7 per cent, Japan’s Nikkei 17.7 per cent and Hong Kong’s Hang Seng index 8.9 per cent.
According to market experts, 2011 was very tough for the equity markets and the gains seen in the first three months of this year are mainly because of a pullback rally.
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.
On the other hand, gold prices are now cooling off mainly due to profit booking after a strong rally last year.
“There were two reasons behind this trend. First, we had a lot of money coming into the Indian equity markets from the FIIs from January to December. Second, globally, there was profit booking in gold,” said Mr Gaurang Shah, Assistant V-P, Geojit BNP Paribas.
“There was profit booking in gold as for the last 10 years it has outperformed. The fear of Eurozone breaking up has receded with Greece getting a bailout package so, lot of people who have removed money from these areas have again gone back and put their money into equities,” he added.
Gold is normally preferred as a hedge against inflation, and investors tend to park their money in gold, considering it as a safe bet, in times of market uncertainties.
“Gold outperforms when equity markets are weak and when investors lose faith in equity they buy gold as safe hedge.May be in next 3-4 months gold will give a major break-out. Gold is consolidating at this moment,” CNI Research CMD, Mr Kishore Ostwal, said.
Signs of recovery in the US market and strengthening of dollar have also led to decline in gold prices.
The gold prices rose from Rs 20,890/10g to Rs 27,410 during 2011. On the other hand, silver prices rose from Rs 46,500 per kg to Rs 50,300.
During the year, the gold prices had risen to close to Rs 30,000 level, while silver had gone close to Rs 70,000 at one point of time. While the gold prices managed to retain most of their gains, the same was not the case for silver.
In the stock market, losses were much larger for mid-cap and small-cap segments as against the blue-chip Sensex stocks during 2011.
While the Sensex fell by 25 per cent, the mid-cap index was down 33 per cent and the small-cap index lost 42 per cent last year. The total investor wealth, measured in terms of cumulative market value of all listed stocks, witnessed an erosion of close to Rs 20 lakh crore during the year.