So much confusion!

Ahead of Diwali, investors traditionally review how the old Vikram Samvat fared and, more importantly, how the new one looks. They usually make token purchases of precious metals during Dhanteras and buy a few stocks during the special muhurat session heralding the new Hindu year. This time around, however, investors are perplexed.

After a long time, all asset classes are moving in one direction – up and up – albeit to varying degrees. Precious metals such as gold and silver have seen a steep rise. Each class is driven by unique factors; nevertheless, the trend across classes is optimistic. Gold, which was around Rs51,720 during Diwali 2022, has risen to Rs1,28,132 per 10 grammes – almost 2.5 times in 4 years. Silver has risen nearly threefold. The reasons for this surge are too well known to be detailed here: uncertainty, geopolitical instability, ongoing wars, and the tariff tantrums of the US have been the prime causes prompting central banks to shore up their gold holdings.

Over the last 3 years, an aggregate of about 1,000 tonnes is believed to have gone into the vaults of various central banks, India being no exception. Besides uncertainty driving purchases, the realisation of the precarious position of the US dollar is also pushing banks to reduce their incremental exposure to dollar assets and diversify into gold. Both physical buying and gold ETFs are on the rise.

In the case of silver, apart from a few central banks taking additional exposure, industrial demand from electric vehicles, solar panels and other manufacturing applications has also led to demand outstripping supply. Added to this is the reported short-selling by a few banks, which has further accelerated the rise in silver prices as short sellers are being squeezed for deliveries. While silver was once known as the poor man’s gold, the sharp rise in the white metal is now eclipsing the growth in gold. The only factor weighing against silver is the large space required for storage compared with gold. Financial assets in the form of ETFs have yet to make a meaningful impact with investors.

Platinum, which is not as widely tracked as gold and silver, has also been moving up. It has risen by about 80 per cent to R47,410 per 10 grammes till October this year due to factors similar to those driving silver: higher demand from the industrial sector, shortage of physical metal, and investor interest.

Alongside precious metals, other metals like aluminium and copper are also climbing, the latter rising by nearly 25-30 per cent to around R1,000 per kg at present. The overall pick-up in industrial demand is also responsible for this. Most global economies are recovering, with inflation largely under control. Property as an asset class is also attracting renewed attention, thanks to the overall rise in incomes across both rural and urban segments. This, in turn, is having a multiplier impact on metals including steel, cement and aluminium.

Returns in the stock markets are also inching upwards. The Sensex, over the 4 years since October 2022 (muhurat day), has risen from under 61,200 during the Diwali 2022 session to deliver a return of 32 per cent, with the Nifty performing slightly better. Though not comparable with the gains in other asset classes, investors recognise that equities perform well over the long term despite temporary slowdowns. Over the past 35 years, the Sensex has risen 80-fold – no small achievement.

The challenges facing all investment classes are well known. Reduced uncertainty, such as a possible cessation of the war between Russia and Ukraine, could see precious metals being re-rated downwards. Likewise, some stability in tariff disputes could also lead to corrections. After touching a peak of $1,900 an ounce in 2011, gold prices fell by 45 per cent over the next 4 years – and silver followed suit. Equities, fortunately, have not witnessed such deep corrections in recent years. Events like the US subprime crisis, which triggered a sharp fall in equities, are rare; the Sensex fell 56 per cent between January and October 2008, while US markets and their economy were hit even harder.

Investors now face a difficult task in deciding where to invest during this year’s muhurat. They must curb their fear of missing out (FOMO) and avoid rushing into asset classes that have already moved up sharply. In the case of equities, investors would do well to monitor their own portfolios rather than simply tracking the Sensex, and to remain invested for the long term. Prudence demands a cautious approach, with modest, token purchases. While the rally in precious metals may still have some steam left – possibly rising another 20-25 per cent – a sudden thaw in war or geopolitics could change the equation swiftly. It makes sense to keep some cash ready for such times.