Gold Rally Signals Bright Future for Indian Equities

A report by JM Financial suggests that the recent surge in gold prices may herald a prosperous period for Indian equities over the next year. Historical patterns show that a low in the Nifty/gold ratio after gold rallies often leads to substantial equity market gains.

A rally in gold prices may pave the way for a positive phase in Indian equities over the next year, according to a report by JM Financial. The analysis highlights a historical relationship between the Nifty and gold prices, showing that a trough in the Nifty/gold ratio post-gold rally consistently precedes equity market gains.

The report claims that in 6 out of 9 historical instances, the Nifty posted gains following the trough in the Nifty/gold ratio. On average, these gains were 2.8% in the following month, expanding to 31.9% by the end of 12 months, suggesting robust near-term prospects for equities.

Moreover, the Reserve Bank of India's strategic increase in gold reserves during crises, coupled with the current divergence between gold and the US Dollar Index, underscores potential equity market strength. The anticipated rate cut cycle in the US is unlikely to support a dollar rally, reinforcing optimism for Indian equities.

(With inputs from agencies.)