An Intermarket Analysis Perspective

As outlined in one of John Murphy’s classic books,Intermarket analysis highlights the inverse relationship between equities and Gold. When equity markets rally, Gold typically consolidates or declines, whereas a slowdown in equities often triggers upward momentum in Gold. This dynamic has been clearly evident over the past year.

Are Central Banks Driving Gold Demand?

Recent data reveals that central banks have been steadily adding Gold to their reserves, offering fundamental support to prices.

• China’s Aggressive Gold Accumulation: During 2024-2025, China significantly increased its gold holdings. By February 2025, China’s central bank reserves reached a record high of 73.6 million fine troy ounces, marking the fourth consecutive month of purchases. Interestingly, the China A50 equity index peaked during this period, while the China Gold International Resource (CGG) index formed a higher bottom and began reversing, indicating a shift towards gold accumulation. This peaking out in the equity market was not only seen in China but also in S&P500, which made it evident that equity markets were under pressure globally.

• India’s Growing Gold Reserves: Similarly, the Reserve Bank of India (RBI) added 72.6 tonnes of Gold in 2024, bringing its total reserves to 876.18 tonnes. This continuous accumulation by central banks provided strong support for gold prices, driving the metal to new highs.

Technical Interplay: Gold Gains as Equities Decline

The inverse relationship between Gold and equities was evident from a technical perspective last year.

• Gold Breakout and Nifty Decline: Gold & Gold mini futures that track the international prices in India consolidated for nearly five months, repeatedly facing resistance near ₹74,500. However, in September 2024, Gold finally broke out, gaining momentum.

• In the same period, the Nifty 50 index peaked at 26,277 and subsequently corrected by over 16%, bottoming out at 21,964. Gold mini futures surged by more than 19% during this decline, confirming the inverse correlation.

Current Outlook: Is the Trend Changing?

At present, Nifty has recovered 8% from its lows, showing signs of base formation after rebounding off its 100-week MA, while Gold is holding near record highs. On the weekly chart:

• Nifty’s Falling Trendline: The index is on the verge of breaking out from a falling trendline, which could signal renewed bullishness in equities.

• Gold’s Gravestone Doji: Conversely, Gold has formed a gravestone doji on the weekly chart—a potential indicator of profit booking . However. If Gold surpasses 89000 on a weekly closing basis, it would open up some more room on the upside.

Confirmation Through Relative Strength (RS)

Observing the Relative Strength (RS) line between Nifty 50 and gold Gold is essential for clearer confirmation of trend reversal.
• The RS line is currently in a downward trajectory, indicating Gold’s relative outperformance.
• A breakout of Nifty from the falling trendline, coupled with an upward reversal in the

RS line, would confirm bullish momentum in equities versus Gold.

Conclusion: Shifting the Portfolio Allocation

Currently, going by the rising trajectory of the Relative strength (RS) Line of Gold against the Nifty, it is evident that Gold has been relatively outperforming the equities. This relative outperformance is likely to continue unless there is a evident shift in the Relative Strength. A confirmed higher bottom formation continues the preference towards Gold. The preference towards Gold as an asset class would continue unless there is a tactical shift in favor of Equities; if this happens this would invite a proportionate change where Investor’s would need to gradually increate their allocation towards equities.

Keeping a close eye on Nifty’s breakout and RS confirmation will be crucial in identifying the next asset allocation shift.

– Foram Chheda, CMT

The Rectangle pattern is a well-recognized price formation in technical analysis that represents a consolidation phase before the price makes a decisive move. It indicates a temporary balance between buyers and sellers, where the price fluctuates within a defined horizontal range. This pattern does not inherently suggest a directional bias but signals that the market is awaiting a catalyst for a breakout.

Identifying a Rectangle Pattern

A Rectangle is characterized by two parallel horizontal lines—one acting as resistance and the other as support. The price moves between these boundaries multiple times without breaking out, creating a sideways market. For a pattern to be considered a valid rectangle, the price should touch both the support and resistance levels at least twice. The longer the consolidation lasts, the more significant the breakout tends to be.

Volume often declines as the pattern develops, reflecting reduced conviction among market participants. However, volume expansion at the breakout level is a crucial factor, as it confirms the strength of the move. Rectangles can form over varying timeframes, from intraday to several months, but larger formations typically lead to stronger breakouts.

Interpreting the Rectangle: Continuation vs. Reversal

A rectangle can function either as a continuation pattern or a reversal pattern, depending on its position within a larger trend. Traders analyze the preceding price action and breakout direction to determine the likely outcome.

A rectangle pattern can serve as either a continuation or a reversal, depending on its context within the broader trend. When it forms within an ongoing trend, it typically represents a pause in momentum before the trend resumes—a breakout above resistance in an uptrend signals further upside, while a breakdown below support in a downtrend suggests continued selling pressure. Volume expansion on the breakout reinforces the strength of the move. However, when a rectangle appears after a prolonged trend, it may indicate trend exhaustion and potential reversal. A breakdown below support after an uptrend signals a bearish shift, while a breakout above resistance following a downtrend suggests a bullish reversal. In such cases, higher volume during the breakout against the prior trend strengthens the reversal signal, confirming a change in market sentiment.

The chart of Narayana Hrudayalaya Ltd (NH) presents a well-defined Rectangle pattern, forming a year-long consolidation phase. The stock has been oscillating between a well-established resistance zone near ₹1,400 and a support level around ₹1,170, reflecting a state of equilibrium between buyers and sellers.

Why Continuation is More Likely

Rectangles are often trend continuation patterns, especially when they occur midway in an ongoing uptrend. The stock has been forming higher lows within the range, indicating accumulation rather than distribution. Additionally, RSI (Relative Strength Index) is holding above 50, suggesting that bullish momentum remains intact. A breakout above ₹1,400 would confirm trend continuation, fueled by fresh buying interest.

Given the strong prior uptrend, range-bound accumulation, and sustained RSI strength, the pattern leans towards a bullish breakout and continuation. Investors should watch for volume expansion on the breakout to validate trend resumption.

Foram Chheda, CMT