Investors are moving money to equities as the pendulum of global sentiment appears to be swinging back from fear to greed

Mumbai: India’s key equity indices outperformed gold in the January-March quarter for the first time since 2006, indicating that investors are moving money to equities as the pendulum of global sentiment appears to be swinging back from fear to greed.
While spot gold prices went up by 6.69% between January and March, the Sensex jumped 12.6% and the broader Nifty of National Stock Exchange rose 14.5%.
The Sensex ended Wednesday at 17,486.02 points, adding Rs3,35,251 crore in investor wealth since 31 December. Spot gold was trading at $1,632 (Rs83,232) per ounce (28.35g) in London at 5.15pm India time on Friday.
The trend is more or less the same across the globe, with most major equity indices beating gold in the first three months of calendar 2012.
During this period, the Dow Jones Industrial Average (up 8.14%), S&P500 (up 12%), Brazil’s Bovespa (up 13.67%), France’s CAC 40 (up 8.35%), Germany’s DAX (up 17.78%), Japan’s Nikkei (up 19.26%) and Hong Kong’s Hang Seng (up 11.51%) outperformed gold.
Looking at a broader time frame, gold returned 24.6% on a compounded basis over the past five years till 31 January, nearly six times more than the 4.1% returns of the Sensex in the same period, according to World Gold Council (WGC) data. For the first time in more than half a decade, the trend is showing some signs of a reversal.
“2011 was a tough year for the markets and these are followed by such pullbacks. We think the worst was over in December, and in India, we expect the markets to make a new high this year,” said Shankar Sharma of First Global Stockbroking.
The Sensex is about 3,700 points away from its all-time high of 21,206.77 recorded intra-day in January 2008, before the subprime crisis in the US triggered a meltdown in the global financial markets. At its Wednesday’s close of 5,323, the 50-share Nifty was 1,034 points short of its record high of 6,357. Markets were shut in India on Thursday and Friday owing to holidays.
“There was so much of fear last year, but now there is a feeling that European problems are settling down. Gold has to come down a bit and equities have to do some catch-up for what they have lost in the last year,” said C.J. George, chairman and managing director of Geojit BNP Paribas Financial Services Ltd.
Gold seems to be cooling off a bit after a strong rally in 2011, with prices rising 10.1% as worries of a double-dip recession in the world’s largest economy and a sovereign debt crisis in Europe saw money chasing the yellow metal, historically a safe haven in troubled times.
Demand for gold in the fourth quarter of 2011 rose 21% year-on-year to $55.2 billion, generating a record annual value for gold demand of $205.5 billion, up 29.5% from 2010, according to WGC.
Apart from a New Year rally in equities, signs of improvement in the US economy and the resultant strengthening of the dollar have seen gold lose some flavour as a hedge. The dollar gained 4.3% against the rupee in the first three months of 2012. Payroll gains in the US probably exceeded 200,000 workers for the fourth month in March, according to a Bloomberg survey of 80 economists.
“The safe haven demand is gone and gold is looking weak now. The dollar is strengthening, which signals short-term weakness in gold. We think $1,550/oz levels as possible support for gold,” said T. Gnanasekar, director at Commtrendz Research.
While in India, the biggest consumer of gold in the world, demand is expected to remain subdued in the near term, especially after the government proposed doubling the import duty on the yellow metal to 4% as it struggles to bring down a widening current account deficit, experts think demand for gold will continue to be strong in a traditionally gold-hungry country. “We are bullish on gold in the long term,” said Gnanasekar.
Finance minister Pranab Mukherjee on Friday said he will reconsider the move after a meeting with jewellers in Delhi.