FOMO or greed? Both driving unusual rally across gold, crypto and AI stocks, says Kotak Institutional Equities – News Air Insight

In a rare market phenomenon, both haven and risky assets are soaring together — a move that Kotak Institutional Equities attributes largely to a cocktail of FOMO and greed. In its strategy report dated October 7, the brokerage said that the sharp rally across gold, cryptocurrencies, and AI-linked stocks reflects investor behaviour that is becoming increasingly detached from traditional macro signals.

Typically, a surge in gold prices is associated with investor anxiety over economic growth, inflation or geopolitical tensions, while a rally in riskier assets like crypto or technology stocks signals optimism about growth and risk appetite. Yet in recent weeks, both have climbed sharply, sending mixed signals about how markets are perceiving the global economic landscape.

Gold prices have jumped 10% in the past month, 19% in the past three months and 33% over the last six months. The brokerage examined a few possible reasons for this steep ascent — such as central banks shifting their holdings away from the US dollar, households anticipating a spike in inflation, or rising concerns over geopolitical conflict — but found little data to support any of these. Inflation readings and expectations of stable policy rates, for instance, don’t point to panic over rising prices. Similarly, central bank data does not show a broad move into gold. What does stand out, Kotak said, is a sharp rise in gold ETF investments, indicating that speculative activity may be playing a dominant role in the metal’s rally.

Today, gold has surged past the $4,000 mark for the first time ever, extending a record-breaking rally driven by geopolitical tensions, prolonged U.S. government shutdown, and expectations of interest rate cuts. Silver too has joined the sprint, touching an all-time high on the back of strong investor inflows and tight supply in the spot market. With gold up over 55% year-to-date, after a 27% gain in 2024, and silver soaring more than 60%, both metals are outpacing global equities and reinforcing their role as safe-haven assets amid uncertainty. However, the rally can be put to the test as analysts caution against profit booking and geopolitical clarity, including President Trump’s announcement of a ceasefire between Israel and Hamas.

At the same time, cryptocurrencies and AI-related stocks have also been on a tear. Kotak links this to the market’s belief in a “new technological and financial order” that could displace existing systems. While optimism runs high, the report notes that AI firms still face hurdles in transforming their largely B2B ecosystem into one that generates broad-based consumer revenues. Meanwhile, crypto’s acceptance in the real economy remains thin even after a decade of existence.

Kotak concludes that the common thread across these surging asset classes is momentum-driven behavior. Investors, it said, may be acting less on fundamentals and more on strong trailing returns — a sign of speculative fervor. The report cautions that if divergent expectations persist, one set of assets, haven or risk, could eventually see sharp losses. Alternatively, if herd behavior continues, both could keep rising — until investor FOMO and greed eventually run their course.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)