Gold has long been considered a highly sought-after investment destination because of its reputation as a store of value. The value that it contains can be said to be drawn from various things – its history as a currency, and later, as the material (gold reserve) backing the currency. But recently, the price of gold has been acting weird.

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In traditional investment theory, there is often an inverse relationship between equities and gold. As stock markets rise, investors tend to move away from gold, considering it a safe-haven asset during times of economic uncertainty. However, the current situation defies this conventional wisdom, as both equities and gold have been experiencing positive trends simultaneously.

The performance

While Sensex and Nifty are up 7.2 percent and 7.7 percent year-to-date (YTD), gold price in US dollars is also at a growth of 5.24 percent from one year ago. In the first half of the calendar year 2023, Nifty delivered 5.83 percent return and gold has also given 5.73 percent return to its investors.

What’s happening?

According to Amit Khare, Associate Vice President (Research) at Ganganagar Commodity Limited, this phenomenon can be attributed to several factors.

"Firstly, while the stock market is performing well, there may still be concerns about global economic stability or geopolitical tensions, which drive investors to seek the safety of gold. Additionally, central banks and institutional investors continue to hold gold as a hedge against inflation and currency fluctuations," Khare told CNBC-TV18.com.

Generally, equities do well in a bullish market and gold is a safe-haven asset during times of uncertainty or economic instability. So, the traditional rule of gold falling when equities rise does not always hold true.

The recent movement between equities and gold may be because of changing market dynamics, geopolitical tensions, and concerns about inflation as mentioned.

"Whilst India and US equities are bullish, the rest of the world remains uncertain. Amidst global uncertainty and rising inflation, gold is proving to be a safe bet and is therefore holding up," said Amit Khosla, Founder at Valtrust.

Long term vs short term

It should be noted that gold and equities are inversely proportional over a longer tenure trend. In the short term, each of these can behave differently driven by specific factors, said Anurag Jhanwar, Co-Founder and Partner at Upwisery Private Wealth.

For instance, over the past 4-5 months equities are seeing a healthy foreign institutional investor (FII) inflow leading to a rise in the benchmarks to record highs. On the other side, we are still struggling with global concerns about rising interest rates, US and Europe recession, ongoing Russia-Ukraine war which keeps the yellow metal in demand, as a safe haven.

"We believe it is a short-term anomaly and the trend will emerge again in the medium-long term. As if we look at it closely, for the past two months gold prices have fallen as against the rise in equity index," Jhanwar said.

The outlook

The rally in gold prices seen in India has been largely due to rupee depreciation and the yellow metal playing catchup with equities, after years of underperformance. Now, with global equity valuations becoming expensive, higher global interest rates, and uncertainty due to geopolitical reasons, Chintan Haria, Head of Investment Strategy at ICICI Prudential AMC, believes that there is increased safe haven buying underway which is likely to support gold prices in the near to medium term.

Should you buy?

This depends on individual investment goals and risk appetite. Gold can provide diversification and act as a hedge against market volatility, but it is essential to carefully assess one's portfolio and consult with financial advisors to make informed investment decisions.

"If we talk about levels then Rs 58,000-57,500 per 10 grams are the good levels to invest for short to medium term, Investors can get 5-7 percent return in short to medium term as per the historical performance of gold," Khare told CNBC-TV18.com.

How should you invest in gold (in case you do)?

While traditionally gold was exchanged or bought in a physical form and it still is, there are certain problems attached to handling physical gold such as storage or chances of theft, purity concerns, etc. Given the problems associated with physical gold, one could invest in gold ETFs, digital gold, or sovereign gold bonds instead.

Gold ETFs are easy to trade on exchanges and come in dematerialised form. Sovereign gold bonds, which are issued by RBI, accompany an assured interest of 2.5 percent per annum while gold deposit schemes can be considered fixed deposits in gold.