With a year-to-date (YTD) return of 11.4 percent, gold has outperformed the Sensex (up 5 percent). It has also beaten most debt mutual fund categories whose returns are less than 5 percent YTD, a report by Business Standard stated.
Its performance in 2023 will depend on how the inflation versus growth dynamic pans out globally, noted the report.
“As central banks hiked interest rates to combat high inflation, both equities and bonds struggled. Gold performed its task as a portfolio diversifier well in that scenario. Later, as risk assets started doing well, its performance was subdued,” said Chirag Mehta, chief investment officer, Quantum Asset Management Company in the news report.
It rebounded again from November onwards, aided by two factors. “With inflation turning milder, the pace of rate hikes is going to be slower in the future,” Navneet Damani, head of research, commodities & currencies, Motilal Oswal Financial Services told BS.
While gold’s YTD performance is flat in the international market, it is in double digits in India. One factor that has made the difference is the rupee. This was the result of the strengthening of the dollar and the pressure on the rupee caused by India’s growing trade and current account deficit. The rupee has depreciated 11.4 percent against the dollar YTD (matching gold’s YTD performance), explained the report.
After the recent run-up, Damani expects gold to remain range bound in the first half of the year.
But it could move up again in the second half. “Our base case scenario is that global economic growth will slow down. Even a recession is a possibility in 2023. Western central banks will then be forced to pivot. Not only will they stop hiking interest rates, but they may also even start cutting rates and infusing liquidity. Such a scenario could lead to repricing of gold in the second half of 2023,” said Mehta.