Gold Is On a Rise. What's Cooking?

Riding the Waves: Understanding Market Cycles 📈📉

For almost 45 years, the Indian stock market has followed a distinct pattern of up cycles and down cycles. An up cycle, or a bull market, is a period of sustained growth, where returns are high and investor confidence soars. A down cycle, or a bear market, is the opposite—a period of stagnation or decline, where returns can be negative.

The data highlights several of these periods, including:

• 1979-1992: A significant up cycle where the Sensex grew at an impressive 33% CAGR.

• 1992-2002: A prolonged down cycle with negative returns of -3% per year.

• 2002-2008: Another up cycle, this time with a 49% CAGR.

• 2008-2012: A down cycle with returns of -5%.

• 2012-2016: An up cycle with a 12% CAGR, followed by a period of low returns.

• 2020-2024: A recent up cycle with a 32% CAGR.

Beyond Equities: The Role of Other Asset Classes 💰

A common mistake investors make is believing that a bull market will last forever. But history teaches us a different lesson: what goes up, must eventually come down. The key is to understand how other asset classes behave during these periods. During stock market down cycles, other assets like gold and debt have often performed well, offering a hedge against falling equity returns. For example:

• 1992-2000: Debt assets performed well.

• 2008-2012: Gold was a standout performer, clocking a 24% return versus the stock market's -5%.

• 2016-2020: Both gold and debt assets delivered stable returns of 8%.

The most crucial takeaway is that market cycles are inevitable. Just as a down cycle follows an up cycle, the next phase of "super returns" is likely on the horizon after a period of consolidation. The challenge for investors is to mentally prepare for these phases and not panic.

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What To Read This Week ?

Today’s Market Update

The new week started on a positive note with some interesting global and local developments. Over the weekend, President Trump and Prime Minister Modi exchanged a few tweets, which seemed far softer than the earlier tone between the two leaders.

On the global front, the bigger story continues to be the fear surrounding the US dollar. Many countries, including India, are reducing their US treasury holdings and replacing them with gold.

India alone has sold nearly $20–25 billion worth of treasuries and moved into gold. With several central banks following the same path, gold prices have shot up sharply.

• Nifty has been consolidating. For the past three days, it has remained almost flat after the GST-related volatility last week. Today, it opened slightly positive and closed with a gain of 0.13%.

• Nifty Junior rose 0.41%, mid-caps gained 0.38%, and small caps moved up 0.18%.

• Bank Nifty, however, continues to hover near multi-month lows, as selling remains concentrated in this sector.

• In less than three weeks, Gold in rupee terms has climbed from ₹9,800 to over ₹10,800 per gram, a gain of more than 10%.

Other Market Triggers

• IT remained weak on fears of fresh US tariffs, falling another 1% today.

• FMCG and power stocks also did well, while some large names like Infosys, TCS, ONGC, Asian Paints, and Trent saw declines.

• Among individual movers, Adani Power surged 3.96% after signing a pact with Druk Green for a 570 MW project in Bhutan.

What to watch next ?

• Globally, there are signs of stress in the US economy. Markets are now expecting three rate cuts by December and further easing next year. Historically, rate cut cycles in the US have always coincided with the onset of recessions, raising concerns that a downturn could be near.

• Gold ETFs worldwide are at record highs. While this looks frothy, any disruption in gold deliveries could push prices much higher, possibly into a parabolic move.

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