Historically, gold has acted as a classic safe-haven asset, rallying during macroeconomic slowdowns. However, MCX gold prices declined around 5% in October despite the US Federal Reserve’s hawkish pause, a softer US dollar, and geopolitical tensions in West Asia.
Hitesh Jain, executive vice president at Yes Securities, in an interview with Mint said gold's recent price weakness stems from higher real yields (US 10-year Treasury Inflation-Protected Securities or TIPS around 3%) and a shift in safe-haven preferences toward yielding or defensive alternatives like US Treasuries, the Swiss franc, and the Japanese yen. Gold’s safe-haven appeal is fading because the global economy is moving away from a ‘savings glut’ era to ‘capital formation’.
While elevated absolute gold prices, rising household commitments (education, housing, consumption) and attractive fixed-income/equity yields have dampened India’s fetish for gold jewellery, Jain does not expect import duty reductions any time soon.
Overall, he sees gold transitioning from a secular bull market into a prolonged, cautious consolidation phase over the next three to five years, potentially underperforming equities and industrial commodities. Below are edited excerpts.
What specific market dynamics suppressed gold’s safe-haven appeal lately? Why did the traditional inverse relationship between equities and gold break down, leading to a simultaneous correction in both asset classes recently?