Gold’s massive run has undoubtedly eclipsed the equity market returns this year, with the prices up nearly 100% in the last two years, as against a 26% rise in the Nifty 50 index. However, this bull run in gold and underperformance by equities has created an interesting pattern on the technical charts — one that spells good news for stock market investors.
According to an analysis by Rahul Sharma, Director & Head – Technical & Derivative Research, JM Financial Services, the Nifty-gold ratio has entered the most oversold in five years, a pattern last seen thrice over 25 years. In the past, such a technical setup has unleashed stock market bulls, resulting in an average of 125% returns in 28 months.
Historical Trend
In the past, the first such instance was seen in February 2009, when Nifty surged 137% in 21 months. It was followed by a period of sharp run in August 2011, when the Nifty 50 index jumped 93% over 43 months and then in March 2020, when the benchmark was up 147% in 19 months.
However, Sharma said that the difference in the past and this time hinges on fundamental factors.
“Unlike earlier periods, central banks, ETFs, and institutional investors have been buying gold aggressively. Because of that, gold is up by nearly 100% over the last 23 months — essentially delivering equity-like returns,” he added.
In both domestic and international markets, gold prices are trading at record high levels, rising up to 41% in 2025 alone.
The latest bout of optimism comes from the rate cut hopes by the US Federal Reserve at its upcoming monetary policy meeting. Market expects ~50 bps cuts by end-2025, possibly more in 2026, thus creating pressure on the US dollar and boosting liquidity, which bodes well for gold.
Additionally, factors like central bank buying are also limiting downside in gold prices and supporting long-term gains, added Sharma. Central banks are buying ~900 tonnes of gold in 2025, well above the pre-2022 average of 500–600 tonnes.
My sense is that from here on, over the next 12 months, gold might give returns of 10–15% at most, meaning most of the rally is already behind us, added Sharma.
Stock market outlook
While gold has shone and has decent upside ahead, the Nifty 50, on the other hand, has underperformed significantly.
For Instance, while Hang Seng and Kospi delivered 51 % and 31% returns during the last year, Nifty delivered -0.69 % return — a huge underperformance.
“Massive sustained selling by FIIs triggered by high Indian valuations is the principal reason for this underperformance. FIIs that sold in India and moved money to other markets have gained. Therefore, they might do it again. A change in this trend will happen when indications of a recovery in earnings emerge,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
Moreover, JM Financial’s Rahul Sharma believes that structural reforms like the GST cuts and income tax cuts will create extra money in the system, which, whether invested or spent, will contribute to the economic cycle.
We’ve already seen three rate cuts, and another one is expected. The monsoon has been excellent, and this quarter generally performs well for the economy. Therefore, in the short term, markets may not be pricing in these reforms or their multiplier effects, but if you take a longer-term view, even if we get half the average return from the previous three cycles (average being 125% over 28 months), we’re still looking at strong upside potential,” said Sharma.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
