Generally, gold and equities move in opposite directions as their movements capture two opposite moods. However, it’s a rare time when both equities and gold are witnessing high volatility.
The Nifty-to-gold ratio has declined to near 1.5, based on gold’s price in India and the Nifty’s current value. This narrowing ratio shows gold’s outperformance of equities in the recent past.
According to experts, when the ratio declines below 2.5, it indicates gold has seen solid gains while the returns from equities have been muted. Some experts read it as a signal that gold may see some profit booking and Nifty 50 may see an uptrend in the near future.
What does narrowing the Nifty-gold ratio indicate?
Over the past year, gold has rallied sharply amid persistent global tensions, strong central bank buying, and expectations of easier monetary policy, while Indian equities have witnessed bouts of volatility after the sharp rally seen earlier. As a result, the ratio has compressed significantly compared with levels above 2.0–2.5 seen during stronger equity phases.
On several occasions in the past, when the Nifty-to-gold ratio dropped below the 2.5 mark, it was followed by a healthy upside in the Nifty 50.
However, this must not be seen as a confirmation that the stock market will rise from the current level because the rise and fall of the market depend on several variables and not just on some ratio analysis.
According to Riyank Arora, Associate Vice President – HNI & Derivatives, Hedged.in, typically, when the ratio falls to lower levels, it reflects a cautious market environment where investors prefer the safety of gold over riskier assets like equities.
However, when the ratio begins to stabilise or narrow after a decline, it can signal improving sentiment toward equities.
“Historically, a sharp fall in the Nifty–gold ratio has often been followed by a catch-up rally in equities, as investors gradually shift funds back into the stock market. It may also indicate some profit booking in gold after a strong rally,” said Arora.
“That said, investors should remember that the Nifty–gold ratio is only a historical indicator. It helps compare the relative performance of equities and gold, but cannot guarantee the future direction of markets,” Arora added.
Naren Agarwal, CEO of Wealth1, also has similar views.
“Historically, when this ratio moves toward the lower end of the range, it indicates that gold has outperformed equities, often during periods of geopolitical stress, macro uncertainty, or risk-off sentiment,” Agarwal noted.
According to Agarwal, at this juncture, the ratio suggests that gold has already delivered a meaningful relative outperformance, but it does not necessarily mean investors should aggressively rotate out of equities.
Agarwal pointed out that gold continues to benefit from structural drivers such as central bank accumulation, geopolitical hedging demand, and currency diversification trends globally.
However, for long-term portfolios, gold should primarily serve as a strategic hedge rather than a dominant allocation.
“Maintaining around 10–15% exposure to gold within a diversified portfolio remains prudent. This allows investors to benefit from gold’s protection during uncertain phases while keeping the majority of capital positioned in equities, which historically remain the primary driver of long-term wealth creation,” Agarwal said.
Outlook for equities and gold
The current market structure favours gold due to increased geopolitical risks and macro uncertainty due to the rise in crude oil prices.
However, if the US-Iran war ends in the next few days, it will remove a major headwind from the market, and the focus will shift to fundamentals, such as earnings and valuations. In that case, equities are expected to rebound.
“While rising trade and geopolitical uncertainty are expected to keep markets volatile, the investment case for India remains strong. The relative macro stability, improving trade competitiveness and earnings recovery put India on a strong footing,” George Heber Joseph, CIO and CEO – Equity, ASK Investment Managers, observed.
“The combination of resilient economic growth, low inflation, and supportive policy settings offers a conducive backdrop for Indian equities over the medium to long run. While commodities act as a safe haven during volatile times, we would like to reiterate that this is the right time to increase exposure to equities,” said Joseph.
From a technical perspective, Arora believes the Nifty has key support near 24,500 and 24,300, while resistance is placed around 25,000 and 25,200. A sustained move above the resistance zone could strengthen bullish momentum.
Meanwhile, for gold, immediate support is near ₹1,59,000 and ₹1,55,000, with resistance at ₹1,64,000 and ₹1,70,000, indicating that the overall trend remains strong even if some consolidation occurs, said Arora.
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.
