NIFTY50 and gold: Do they both shine at the same time? Here's what historical data tells us

Conventional wisdom indicates that the Nifty (equity markets) and gold are always inversely correlated. This is because gold is seen as a safe-haven asset whose demand rises when equity markets are underperforming.

However, the performance of the NIFTY50 and gold from January 2023 to May 2024 goes against convention.

Also, is this an exceptional phenomenon or have we seen such periods in the past?

Let’s take a deeper look.

First, does gold act as an alternative investment during periods of weakness in the NIFTY? The chart below largely validates this thesis. During times when the NIFTY50 saw a sharp correction, gold provided stable or better returns.

Gold and NIFTY50 historical price trend (last 28 years)

Source: London Bullion Market Association (LBMA), Investing.com, Canva; *The Gold AM price INR is the morning benchmark price of gold set by the LBMA, quoted per ounce. (1 ounce ≈ 28.35 grams)

That said, we believe there is a nuance here that most investors overlook. As a commodity, gold prices are more closely linked to global events than domestic markets.

How does this help domestic investors?

Let’s look at the table below to decipher some interesting insights:

• During periods of global uncertainties, gold has managed to deliver strong returns for domestic investors
• Depending upon the extent and severity of the crisis - there are distinct periods (as long as 4 years) when domestic markets have also held up and delivered strong returns.

Let’s look at some such periods, over the past 15 years.

Source: LBMA, investing.com, news articles

What does this mean for investors?

For the more discerning and opportunistic investors, this offers an opportunity, to boost performance. Investors have the chance to not only bolster their returns but also lower overall portfolio volatility.

Investors could look for periods when global uncertainty – rising inflation, falling USD, crude oil rise, among others – causes volatility in the broader markets. These are typically some triggers that help support the price of gold. Besides that, if the spillover impact from these events on Indian markets is limited or positive (as seen during 2017-19), domestic markets could also remain resilient.

That said, investors should know as with any opportunistic or tactical trade, having a strong investment thesis, and regularly monitoring the evolution of that thesis.