Why are gold prices and Indian stock market rising together? Explained

Amid heightened volatility and uncertainty driven by global and domestic factors, investors are witnessing a rare phenomenon—gold and equities rising in tandem.

Gold prices have been on a record-breaking spree over the last few days. Since March 19, domestic spot gold prices have risen over 4 per cent this month. Similarly, the equity benchmark Nifty 50 has gained 3.5 per cent this month.

Historically, these two asset classes move in opposite directions. Gold prices tend to rise during times of uncertainty, while the stock market rallies when economic indicators signal strong growth.

Why are gold and equities rising together?

There are two major factors that are supporting gold and risker equities at the same time- a fall in the dollar index and the expectations of further rate cuts from the US Fed.

The Dollar Index, which measures the value of the US dollar against a basket of six major currencies, has declined by about 5 per cent this year, from 108.5 on December 31 to around 103.4 on March 19.

Since gold is priced in US dollars, a weaker dollar makes gold cheaper for buyers using other currencies, enhancing its appeal.

Additionally, a weaker dollar tends to attract foreign capital inflows into emerging markets like India, as investors seek higher returns with reduced risks of currency depreciation. This is positive for the stock market.

Another factor which has influenced both equities and gold is the expectations of further rate cuts from the US Federal reserve.

On march 19, the US Federal Reserve kept its benchmark interest rate steady at 4.25-4.50 per cent. However, US Fed chair Jerome Powell-led rate-setting panel projected two quarter-percentage-point rate cuts by the end of this year.

Interest rate cuts by the US Fed weakens dollar which triggers increased foreign investments in India. Weaker dollar strengthens the rupee, lowers borrowing costs, and boosts corporate earnings. All these factors are positive for the Indian stock market.

Fed rate cuts are positive for gold also as they reduce yields on bonds and fixed-income assets, causing investors to shift focus to non-interest-bearing gold assets. Rate cuts also raise inflation risks, which is positive for the yellow metal, which is considered a hedge against inflation. Increased liquidity in the system also augurs well for gold and equities.

"As the US Fed aims for interest rate reduction, the relative appeal for gold will also go up. It looks like the trend will continue because currency volatility can be a factor which will continue to help god," said Pankaj Pandey, the head of research at ICICI Securities.

The broader picture

Some experts say gold and equities both rose this month, but this trend is a short-term phenomenon and may not continue for a long time.

In fact, the yellow metal has sharply outperformed equities this year. Domestic spot gold prices have jumped over 16 per cent so far this year, while the Indian stock market benchmark, the Nifty 50, has declined by more than 3 per cent during the same period.

Gold and equities are responding to different market triggers.

Gold prices are climbing due to economic uncertainty surrounding Trump’s tariff policies, heightened geopolitical risks, a weaker dollar, increased central bank purchases, and strong demand from major consumers like India and China.

Meanwhile, equities are rising as investors find valuation comfort after a recent market correction. Additionally, the stock market is factoring in a rebound in economic growth and a revival in corporate earnings.

Jayesh Faria, Director and Regional Head – West at Motilal Oswal Private Wealth, underscored that the inverse correlation between gold and equities holds true over the long term.

Faria said equities are undergoing a correction and stabilising as large-cap valuations now appear reasonable, while small-cap valuations remain stretched, leading to a modest uptick in the market.

On the other hand, gold, which traditionally has been regarded as a global currency, is seeing increased demand due to rising geopolitical uncertainties and growing trade war concerns. Several large treasuries, including India, are steadily increasing their gold reserves, recognising its historical role as a reliable store of value for over 3,000 years, Faria said.

Despite these movements, Faria emphasised gold and equities are being influenced by distinct factors, making this a short-term phenomenon rather than a structural shift.

According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the old correlation of gold and equities does not exist now. Moreover, while gold is soaring high, equities are witnessing only some recovery.

"The traditional inverse correlation between gold and equities no longer holds. While gold is hitting record highs, equities are not exactly surging—they are merely rebounding from recent lows," said Vijayakumar.

"Gold prices are soaring due to global uncertainty driven by Trump’s tariffs and escalating geopolitical tensions. Meanwhile, equities are recovering as markets stabilise after hitting a bottom, supported by improving macroeconomic indicators. With signs of economic recovery emerging, the worst may be behind for the stock market," Vijayakumar said.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.