Motilal Oswal Financial Services Ltd (MOFSL) is seeing this Diwali as a good time to accumulate gold. While macroeconomic factors like rising interest rates and inflationary pressure have an upper hand currently, gold prices could move up quickly if there is a change in any of these factors, MOFSL said in its “Gold Note” ahead of Diwali.
“On domestic front, gold and silver prices get a boost during festive season. Fall in precious metal was restricted following rupee depreciation that was to the tune of ~10% coupled with hike in basic customs duty on gold imports by 5%. As India is a price taker, any movement in COMEX affects our prices,” the note said.
“Macro-economic backdrop does have an upper hand this year, major focus is on central bank’s monetary policy, inflationary pressure, and geo-political tensions. If there are any changes in these factors, we could see some short covering, which could take gold prices much higher and quicker, but we feel that till the time we don’t see a change in stance from major central bankers w.r.t aggressive interest rate hikes, we could continue to witness pressure on gold prices,” it added.
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The note further said that amidst these uncertainties, it is advisable to have gold and silver in one’s portfolio. “Hence, anyone who is looking to invest in gold and silver with a medium to long-term outlook can start to accumulate at these levels.”
Gold performance in Diwali month
In the last 10 years, gold returns have been negative during the rate hike scenarios during Diwali month. The yellow metal has, however, given a positive return in Diwali month during the rate cut scenario.
“We believe that this year macro factors will have an upper hand over the move in metal prices, as tighter monetary policy scenario is not a great phase for non-yielding asset i.e. gold. To justify this analysis, we have compared Diwali month returns over past 10 years. 2013 was the year when taper tantrum was announced, 2015 -2018 was rate hike cycle, 2019-2021 was lower interest rate zone and 2022 we are again in the rate hike scenario. During rate hike scenario, Diwali months return for gold has been negative,” MOFSL said.
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The note further said it is important to keep a watch on the price trend for gold that is stuck between a tussle of bulls and hears. “Extreme negatives does trigger bargain buying for gold and so it is important for medium to long-term investor to see a broader picture. Except for a few dips, overall trend for gold has remained positive, and the returns also are quite decent,” it said.
