Equities outshine gold in first five weeks of calendar year

During the last two years, a sharp rupee depreciation of about 20% added to the increase in domestic gold prices even as international prices traded 12% below their all-time high of $1,900 per ounce, touched in November 2011. Not surprisingly, even the investor purchases of gold exchange-traded products have largely beaten the net inflow in the equity mutual funds excluding 2011. Market observers argue that even as the strong allocation to gold from hedging perspective may continue, from capital gain or return perspective, the investor orientation is likely to come off.

“The tendency to buy gold for investment has come down considerably among the high-income groups as equities are considered fairly valued just as demand for fixed-income products have remained robust,” said Raghvendra Nath, MD, Ladderup Wealth Management.

The craving for gold as a safe-haven asset is expected to come down this year amid a stabilising economic scenario in developed nations, including the US and European region. The quantitative easing measures of the global central banks are seen lending support to gold's demand as an inflation hedge. However, a likely shift in institutional investors' gold exposure that currently stands at record highs could also set in huge price correction.

According to Barclays Capital, which pegs the gold held across physically backed exchange-traded products at 2,649 tonne, such huge holdings pose a key risk to prices.

“Gold prices risk a 5% correction from the current levels also as rising FII inflows in India amid falling risk aversion could lead to further rupee

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