Indian households are expected to continue investing in gold as they consider it to be a store of value, according to a research report by brokerage firm Kotak Institutional Equities.
“Indian households will likely continue to see gold as a store of value, despite the rise of equity as an asset class,” the report said. Gold purchases in the Indian market have surged to record high levels in recent years.
“Current uncertain economic scenarios bode well for gold and silver, making them a perfect sought-after destination amid gold serving as a natural hedge against equities since September last year,” said Naveen Mathur of Anand Rathi Shares and Stock Brokers.
“Since gold serves as a hedge against uncertainties, one should always consider diversifying portfolio into equities, precious metals, and debt instruments to optimise returns during uncertain times,” he said.
According to the Multi Commodity Exchange data, gold futures rose 0.3% to ₹86,269 per 10 grams on February 24, compared to ₹86,010 on the previous commodity market close.
“We expect gold to test ₹87,900 to ₹88,500 per 10-gram levels in MCX futures in 1 to 2 months scenario, a move closely aligned with $3,040 to $3,050 per oz levels in international markets,” said Mathur.
On the global gold front, he noted: “Gold prices traded at record levels but witnessed a struggle to breach above the same in day trade today, witnessing consolidated moves and awaiting fresh fundamental triggers where an upside breakout above $2,950 per ounce could trigger a rally toward $3,000 to $3,040 per oz. Key economic indicators shaping the market this week include US GDP data, consumer confidence, and the core PCE price index.”
“Traders and investors should closely monitor the reports on personal spending and income for January. Meanwhile, silver’s outlook remains positive albeit profit booking moves to persist in the initial half of the week. As inflation fears persist and geopolitical risks grow, silver’s dual role as a precious metal and an industrial commodity provides a robust foundation for further gains in a medium-term scenario,” said Mathur.
Kotak Institutional Equities also noted that the consumption pattern within Indian households when buying jewellery will likely change with the recent rise of lab-grown diamonds (LGDs).
Jewellery markets worldwide are facing a shift in customer taste and preferences due to the lower price of a lab-grown diamond than that of a naturally mined diamond. A natural diamond is more expensive than a lab-grown diamond. It holds a premium value in the secondary market, even though the LGDs have been adopted faster in developed nations.
According to the research report, the Indian jewellery market is at the early stage of the adoption of lab-grown diamonds, with the demand expected to take off with customers moving to a mix of gold, natural diamond and LGD-studded jewellery.
However, Kotak sees risks to the profitability of jewellery companies and stocks from this trend due to a higher market share of LGD-studded jewellery, lower revenues for firms due to the lower mix of physical gold in the overall gold purchases, and impact on valuations on any negative changes in the above factors.
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