Business: Apr 8, 2012

Gold was dazzlingly bright for investors for many years, but the stock market apparently started 2012 in a bright note with a good return to 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 - in India, as well as the global markets.

Analysis of gold prices and stock market movements shows that the Indian stock market have risen about 15 percent during the first quarter of this year - as against a gain of only about three per cent in gold prices.

The silver has even relatively better than gold, with a gain of around nine per cent, but still could not match the brightness of the stock market rally during this period.

The stocks' of performance over the gold market in the first quarter of 2012 comes marks a major reversal of trends seen in the previous year.

While the stock market plunged by about 25 per cent in 2011, gold was found to be the best asset class with a 31 percent surge. Despite its very unstable moves, silver prices also ended last year with a gain of about eight per cent.

The historical data show that the gold has a positive return over the 12 of last 15 years. Also, the gold price estimated by an average of 20 percent over the past 10 years, as against about 18 per cent for equities.

However, both the benchmark indices of Indian stock market, BSE and the Senses nIf the Nifty, they surpassed 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 percent.

In comparison, gold prices have risen about three percent and silver by around eight per cent between January-March 2012.

The gold prices in India rose from about Rs 27,600 per ten gram to about Rs 28,400 during that period, while silver rallied by around Rs 51,100 to Rs 56,200 per kg.

In a global market also, gold prices have risen by only about four per cent in the first three months of 2012, which is lower than most of the major global stock indices.

During that period, the Dow Jones Industrial Average (DJIA) gained about 6.6 percent, NASDAQ has rallied 16.7 percent, Japan Nikkei rose 17.7 per cent and Hong Kong Hang Seng index of already surged 8.9 percent.

According to market experts, 2011 was very hard for the equity markets and the gains we saw in the first three months of this year is mainly due to a pullback rally.

Macroeconomic headwinds on the global and domestic front, and concerns about policy reforms and currency fluctuation have been some of the main factors that caused a 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.

"It was mainly two reasons behind this trend, first, we had a lot of money coming into the Indian capital markets by the FIIs from January to December. Second, globally, was profit booking in gold," said Gaurang Shah, Assistant VP, Geojit BNP Paribas .

"There was profit booking in the value of gold as for the last 10 years has passed. The fear of Euro separate it receded with Greece taking a bailout package as well, a lot of people who removed money from these areas again went back and put his money in equities, "he added.

Gold is usually 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 the equality they buy gold as a safe hedge.

Perhaps in the next 3-4 months will give gold an important break-out.

Gold is consolidating at this point, "CNI Research cmd Kishore Ostwal said.

Signs of recovery in the U.S. market and the strengthening of the dollar also led to a decline in gold prices.

The gold price rose from Rs 20,890 per ten gram to Rs 27,410 during the year 2011. On the other hand, silver prices have risen from Rs 46,500 per kg to Rs 50,300.

During the year, gold prices rose to close at Rs 30,000 level, while silver was close to Rs 70,000 in a moment of time. While the gold price managed to keep most of their gains, the same was not the case for silver.

In the stock market, losses were much greater for mid-cap and small cap segments, as opposed to the blue-chip Sensex stocks for 2011.

While the Sensex has fallen by 25 per cent, the mid cap index was down 33 per cent and the small cap index has lost 42 percent last year. The total investor wealth, measured in terms of total market value of all listed stocks, witnessed erosion of about Rs 20 lakh crore during the year.

Business

Sunday, April 8, 2012

Stocks overshadow gold’s glitter with strong Q1 rally

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