Dhanteras 2024: Shopping for gold? 7 key factors that are likely to affect gold prices in near term

Dhanteras and Diwali are not only a time of joy and celebration but also a season with special significance for gold investments in India. With Dhanteras today and Diwali 2024 approaching, gold’s cultural and economic importance remains paramount.

In 2025, the outlook for gold investment appears especially compelling, said brokerage house Religare Broking in a recent report. The global economic landscape has been highly dynamic, influenced by fluctuating markets, geopolitical tensions, and varying interest rates—all of which have affected gold prices. Nevertheless, gold continues to maintain its role as a safe haven asset, it emphasised. Its strong performance over recent years, including substantial returns in 2023, highlights its resilience and sustained appeal among investors.

Key Movers

Religare Broking has outlined several key factors expected to influence gold prices in the months ahead. 

Geo-Political Concerns: Religare highlighted that ongoing geopolitical tensions are posing a significant risk to global financial stability. The Israel-Hamas conflict has heightened regional instability, disrupted global supply chains, and fueled inflationary pressures. Additionally, China’s military activities in the South China Sea and its trade disputes with the U.S. add further complexity to the situation. Non-military confrontations in the Asia-Pacific region are likely to increase as a result.

The potential for further escalation in the Middle East, including possible Israeli and Houthi militant disruptions along Red Sea shipping routes may also strain supply chains. These combined factors are expected to sustain robust demand for bullion, added Religare.

Rupee Depreciation: Religare pointed out that the Indian Rupee, which recently crossed the 84 mark against the U.S. dollar, hitting a record low, remains on a downward trend. Rising geopolitical risks have pushed oil prices higher, while equity market outflows—partially redirected toward China—have added to the rupee's strain. The RBI is anticipated to permit further rupee depreciation in light of record-high gold prices and a strong U.S. dollar. This continuing downward pressure on the Indian rupee is likely to support elevated gold prices.

Central Bank Buying: Religare noted that safe-haven demand for gold remains robust amid ongoing economic uncertainty and the underperformance of domestic assets. Data from the World Gold Council revealed that global official reserves increased by 290 metric tons in the first quarter of the year, marking the largest first-quarter growth since 2000. In the second quarter, global central bank gold purchases rose 6 per cent, reaching 183 tons. China’s central bank notably continued its gold buying streak for a fifth consecutive month as of September. Altogether, central banks worldwide purchased a record 483 tons of gold in the first half of 2024.

Inflation: Religare reported that in September 2024, the Federal Reserve lowered its key interest rate by 50 basis points, marking its first rate cut since 2020, as U.S. inflation showed signs of easing. U.S. inflation slowed for the sixth consecutive month, reaching 2.4 per cent in September 2024, its lowest since February 2021. Despite this downward trend, inflation still hovers above the Federal Reserve's 2 per cent target, reinforcing demand for gold in global markets as it remains a favoured hedge against inflation.

Investment Demand: Religare stated that global investment demand has been a key driver of rising gold prices throughout 2024. In the second quarter, demand for gold bars, coins, and gold ETFs held steady year-on-year at 254 tonnes. While there was a 5 per cent drop in the combined demand for gold bars and coins compared to the previous year, investment specifically in gold bars rose by 12 per cent. Additionally, global gold ETFs saw increased outflows in Q2 2024, with holdings decreasing by only 7 tonnes—a modest decline compared to the 21-tonne decrease recorded in Q2 2023. Going forward, demand for gold is anticipated to remain robust, likely fueling further price growth as investors continue to seek the metal as a safe-haven asset, said the brokerage.

Physical Gold Demand: Religare informed that physical gold demand has risen sharply in 2024, driven primarily by Over-the-Counter (OTC) investments and increased central bank acquisitions. Including OTC investments, total gold demand climbed by 4 per cent year-over-year, reaching 1,258 tonnes in the second quarter—the highest second-quarter level since 2000. It added that Central banks have intensified their gold purchases as part of strategies for portfolio protection and diversification amid prevailing uncertainties. Going forward, Religare anticipated that strong physical demand would likely persist, reinforcing gold's ongoing resilience.

Dollar Index and Interest Rates: Religare highlighted that gold and the dollar often have an inverse correlation, with gold acting as an inflation hedge. Over the past six months, the dollar index has declined from 106.50 to 100.15, boosting gold prices to record highs, though gold has held strong even with a recent dollar rebound.

Typically, rate cuts by central banks, especially the U.S. Federal Reserve, support gold prices by reducing the opportunity cost of holding it. In September, the Fed cut rates by 50 basis points—the first in four years. Further cuts are projected: 100 basis points in 2025 and 50 in 2026, which could continue to support gold’s upward momentum, noted Religare.

Religare concluded that the convergence of cultural significance, economic uncertainty, and strategic central bank purchases strengthen gold’s position as an attractive investment option for 2024. With geopolitical tensions, fluctuating currency values, and inflationary pressures, gold is likely to remain a lucrative choice for investors as a reliable safe-haven asset, especially during Diwali. This sustained demand and supportive market conditions are expected to keep gold prices resilient in the coming months.

Disclaimer: 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.