OPINION: Why Nifty 50 And Gold Prices Are Hitting Record Highs Simultaneously?

In a knee-jerk reaction, India's main equity benchmark Nifty 50 hit a record high on the first day of this financial year at 22,529.95 led by Nifty Bank and financial services.

What is surprising is, Gold prices also touched all-time-high at Rs 63,600 for 10 grams of 22 carat today widely driven by the anticipated US Federal Reserve's interest rates cut in the coming months and geo-political unrest in the world.

In an ideal world, investments in the stock market is considered risky with high returns and gold is considered as a safe haven asset as it usually gives guaranteed returns. So it was highly unlikely that Gold and the stock market will move in the same direction - so far. But that perception has changed.

Gold prices have risen over 8 percent this year so far and analysts say that the wedding season in India will further boost the yellow metal prices. Last year, it rose more than 15 percent in India, the world's second-biggest consumer of the precious metal.

But India's gold imports are expected to dip by over 90% in March from the previous month to touch their lowest since the COVID-19 pandemic, a government official and two bank dealers told Reuters last week.

Despite that gold prices have risen all over the world and demand for the yellow metal is predicted to continue by the market participants.

"We expect gold prices to trade higher this year as safe-haven demand continues to be supportive amid geopolitical uncertainty with the ongoing wars and the upcoming US election," said Ewa Manthe, commodities strategist at ING.

"We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy."

Indian stock market too is touching highs just before the 2024 Lok Sabha Election which will be closely watched by investors. Nifty 50 is up 3.45 percent this year so far.

The benchmark equity indices ended the financial year 2023-2024 with noteworthy gains as the Nifty 50 spiked by 29% and the Sensex jumped 25% during FY24.

Historically, stock markets have always given positive returns during an election time. Even in 2019, Nifty hit record highs just before the election results. While past performance does not symbolize future outcomes, historical market trends can provide meaningful insights.

Stock market gains usually stabilizes after election results and more so after the full Budget is presented.

The stock market this week will be driven by the monetary policy outcome by the Reserve Bank of India. The central bank is widely predicted to keep repo rate at 6.5 percent at its April meeting.

BoFA economist Aastha Gudwani expects the RBI to keep rates unchanged.

"The impact of repo rate changes on deposit rates is instantaneous in case of fresh deposits for all bank groups, while it takes around 3-4 months in case of rates on outstanding deposits. This implies, a 100 bps change in the policy repo rate pushes term deposit rates by around 70 bps contemporaneously," BoFA's Gudwani adds.