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Stocktwits - The Nifty/Gold (INR per gram) ratio might be the most underrated macro signal in the Indian market, according to SEBI-registered analyst Rajneesh Sharma.
The Nifty/Gold ratio reflects the broader risk appetite in the Indian economy. Historically, an uptick in the ratio from the near 2.65 level has preceded major Nifty rallies, regardless of domestic or global turmoil. As of June, the Nifty/Gold is back at its historic level, Sharma added.
The Nifty/Gold ratio acts as a barometer of investor sentiment. It compares the Nifty 50 index to gold priced in Indian rupees per gram.
A falling ratio signals fear and risk aversion, with investors preferring gold as a haven. In contrast, a rising ratio indicates a shift back to equities and confidence in economic growth, Sharma explained.
He noted that over the past two decades, four key rebounds in the Nifty/Gold ratio, from the 2.30–2.65 zone, have each triggered strong equity rallies.
In 2004, the Nifty/Gold ratio bottomed near 2.65, on which the Nifty rallied by 40.06% over approximately six months.
In 2009, during the global financial crisis, the ratio dipped to around 2.30. The Nifty responded with a 76.86% surge over nine months.
In 2014, amid a significant policy shift, the ratio again approached the 2.60 mark. This coincided with a 42.14% gain in the Nifty, which lasted 11 months.
In 2020, during the COVID-19 pandemic, the ratio fell back to around 2.30, with the Nifty rebounding sharply, rising 68.51% over the next year.
The Nifty/Gold ratio is currently around 2.67, hovering just above its long-standing support zone of 2.65. With the Nifty just below 25,000, this marks the fifth test of this critical level since 2004, potentially setting the stage for another significant market move, he noted.
A sustained rebound in the Nifty/Gold ratio could signal a shift in investor sentiment toward equities, Sharma said, adding that a decisive Nifty breakout above 25,000, primarily on substantial volumes, would confirm this trend.
At the time of writing, the MCX Gold rate was ₹99,511 per 10 grams, and the Nifty was at 24,936.50. Year-to-date, the Nifty index has gained 5.4%.
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