Diwali 2024: Gold and silver have long been viewed as reliable investment choices, with their historical use as hedging tools during uncertain times such as black swan events, market downturns, and currency devaluation. These precious metals are also seen as effective in combating inflation.
However, it's important to note that both gold and silver experience boom and bust cycles like any other assets. When considering investing in these metals, it's crucial to keep in mind certain factors regardless of the time period.
This year's Diwali coincides with two significant events: the US presidential election and the ultimate Federal Reserve policy meeting of 2024. Traditionally, demand for gold tends to increase during the festive season, boosting market sentiment. However, recent concerns about rising prices may impact overall demand. Although domestic demand may see a slight decrease, prices are expected to remain stable due to these key events.
Regardless of changing market conditions or volatility, gold has consistently proven to be a reliable store of value during uncertain times. According to Motilal Oswal Financial Services Ltd (MOFSL), those who invested in gold during Diwali 2019 would be enjoying approximately 103% returns on their domestic gold investments by this Diwali.
Based on MOFSL's analysis of leap years and historical trends in Gold prices, only two occasions (2015 and 2016) have seen negative returns in the 30 days preceding Diwali since 2011. Other than in 2022, the period leading up to Diwali has consistently shown higher returns compared to the period following the festival.
MOFSL has established targets for gold, with expectations of reaching Rs 81,000 in the medium term and Rs 86,000 in the long term. The brokerage also anticipates gold to hit $2,830 on COMEX in the medium term and $3,000 in the long term. Gold has shown strong performance over the years, consistently closing higher on the domestic front since 2016, with the exception of 2021. This year has been particularly noteworthy, with gold achieving all-time highs on both the Comex and domestic markets, posting impressive gains exceeding 30% year-to-date.
According to MOFSL analysis of leap years and historical patterns of Gold, since 2011, there have only been two instances (2015 and 2016) where the 30 days leading up to Diwali recorded negative returns. Aside from 2022, pre-Diwali gains have consistently outpaced post-Diwali gains.
“We continue to believe that gold has further upside potential wherein any dips could present buying opportunities. According to our recent quarterly report, a correction of 5-7% is plausible and could serve as an accumulation zone," said Manav Modi, Analyst, Commodity Research, Motilal Oswal Financial Services.
Factors that will can impact Gold
According to MOFSL analysis, two key factors underpinning this year’s rally in precious metals are rate cut expectations from the Federal Reserve and rising geopolitical tensions, particularly in the Middle East.
"US presidential elections take place in leap years, which typically lead to significant volatility in the commodities segment. This environment has generally been favorable for gold and silver. However, from 2012 to 2016, there was only one period of negative returns for these metals during leap years, with the remaining periods showing positive momentum," MOFSL said in a note.