Gold Prices Fall, NEPSE Gains: Why Smart Investors Are Shifting Back to Stocks in Late 2025

Introduction: From Gold Rush to Stock Market Shift

Throughout 2025, gold was the go-to safe haven for Nepali investors. Prices soared as global uncertainty, inflation fears, and liquidity stress dominated sentiment. But as the year draws to a close, gold’s shine is dimming — and NEPSE is slowly reclaiming investor attention.

In recent weeks, gold prices have dropped by more than NPR 3,000 per tola, while the NEPSE index has climbed above the 2,000 mark, signaling a subtle yet meaningful shift in market mood. The relationship between gold and stocks has long been inversely correlated — when one cools, the other tends to heat up.

So, what’s driving this turnaround, and what should investors expect next? Let’s explore the changing dynamics of gold, liquidity, and the Nepali stock market.

1. Why Gold Prices Are Falling

The global and domestic gold price correction can be traced to several key factors:

a. Strengthening of the U.S. Dollar and Global Yields

As global inflation pressures ease, central banks — especially the U.S. Federal Reserve — are signaling stability in interest rates. A stronger U.S. dollar and rising bond yields reduce the appeal of gold, which doesn’t generate income.

b. Reduced Local Demand

Post-festival demand for jewelry and ornaments has declined. During the festival season, Nepal’s gold imports surged, pushing prices up temporarily. Once that demand faded, wholesalers faced oversupply, triggering local price adjustments.

c. Stable Inflation Outlook

Inflation in Nepal has remained moderate, and the Nepal Rastra Bank (NRB) has avoided aggressive tightening. With prices of essential goods under control, the urgency to hold gold as a hedge against inflation has decreased.

d. Improved Confidence in Financial Assets

Investors are now rebalancing toward productive assets — particularly stocks — as sentiment improves in the banking and hydropower sectors. This diversification away from gold is one of the clearest signs of economic normalization.

2. The Capital Shift: From Gold to Equities

When gold prices fall, it doesn’t just affect jewelers — it influences liquidity flow across the financial system.

a. Unlocking Idle Capital

Households that parked excess liquidity in gold during uncertain months are now reconsidering. With the market stabilizing, investors are liquidating gold holdings and redeploying funds into equities, mutual funds, and fixed deposits.

b. Broker Turnover Rising

Brokers report higher daily trading volume, signaling renewed retail participation. Many traders who stayed inactive during gold’s rally are now returning to the market, seeking opportunity in underpriced NEPSE sectors.

c. Sentiment Shift Toward Growth

The drop in gold prices is psychologically reinforcing optimism — when safe assets underperform, risk appetite returns. This behavioral cycle often precedes the early stages of a stock market uptrend.

3. NEPSE’s Performance: The Return of Optimism

After a challenging mid-year phase marked by liquidity shortages and policy uncertainty, NEPSE is gradually turning around.

a. Index Recovery

The NEPSE Index has rebounded from around 1,850 to 2,050, a 10% recovery in just a few weeks. While not yet a full bull run, it indicates renewed confidence.

b. Stronger Turnover

Average daily turnover has surpassed NPR 4 billion, up from barely NPR 2.5 billion a month ago — showing broader participation across traders and institutions.

c. Sector Rotation in Action

Liquidity is flowing selectively — Banking, Hydropower, and Insurance are gaining strength, while Microfinance and Hotels remain range-bound. This reflects smart money rotation into liquid, dividend-paying stocks.

4. Banking Liquidity and Interest Rates: The Hidden Catalyst

One of the biggest enablers of the stock market rebound is improved liquidity. The Credit-to-Deposit (CD) ratio has eased as remittance inflows remain robust and festival-related withdrawals subside.

a. Lower CD Ratios

Banks now have more capacity to lend, easing financing costs for investors. This has helped stabilize margin lending, a key driver of NEPSE activity.

b. Stable Policy Environment

Nepal Rastra Bank’s cautious stance on monetary tightening has maintained market calm. With no drastic policy shocks, investors can make long-term plans — a luxury that was missing in early 2025.

c. Real Interest Rate Balance

Deposit rates remain attractive, but real returns are capped by inflation, encouraging savers to explore alternative assets like equities for better long-term yield.

5. Investor Psychology: Fear Fades, Confidence Builds

Markets move not just on numbers, but on emotion. In early 2025, the mood was dominated by caution; now, calculated optimism is returning.

• Retail investors are re-entering after months of watching from the sidelines.

• Institutions are gradually building positions in blue chips.

• Foreign investors (though limited in Nepal) are monitoring signals of macro stability.

The drop in gold prices has acted as a psychological “permission slip” for many — a cue that risk-taking may be safer again.

6. Sector-Wise Analysis: Who Gains from the Shift

The financial and energy sectors stand out as the most likely to sustain NEPSE’s late-2025 growth.

7. Global Cues and Local Implications

Gold’s decline isn’t happening in isolation. The global investment landscape is shifting too.

a. U.S. Market Stability

The U.S. stock market has stabilized after a turbulent first half of 2025, reducing global uncertainty and risk aversion.

b. Commodity Correction

Oil and gold — both major global indicators — have softened, suggesting reduced inflationary stress worldwide.

c. Strong Regional Linkages

India’s Sensex and NIFTY are hovering near record highs, indirectly boosting confidence in South Asian markets, including Nepal.

Together, these cues strengthen NEPSE’s macro foundation for recovery.

8. Practical Strategies for Investors

Smart investors should see the current shift not as a one-time event, but as a strategic opportunity to rebalance portfolios.

a. For Short-Term Traders

• Focus on liquid large-caps in banking and hydropower.

• Use RSI and MACD signals for timing entries after small pullbacks.

• Avoid speculative small-caps without volume support.

b. For Long-Term Investors

• Accumulate dividend-paying blue chips.

• Keep exposure balanced between financials and utilities.

• Reinvest profits from gold sales into mutual funds for diversified growth.

c. For Conservative Investors

• Maintain small allocations in gold (10–15%) as a hedge.

• Use systematic investment plans (SIPs) in mutual funds to average costs.

9. Risks to Watch

Despite optimism, a few risks could temper the rally:

• Global price shocks in commodities or oil.

• NRB tightening if credit growth accelerates too quickly.

• Political uncertainty ahead of fiscal policy updates.

• Profit-booking pressure near key NEPSE resistance levels (2,150–2,200).

Thus, investors should remain disciplined, using stop-loss and risk-reward frameworks.

10. What Lies Ahead: The Road to 2026

If liquidity remains ample and inflation stable, NEPSE could end 2025 above 2,200 points, entering 2026 on a cautiously bullish note.

The next year is likely to feature:

• Continued rotation into financials and insurance.

• Gradual retail investor re-entry.

• Growing use of data-driven trading tools among young traders.

This marks the early stages of what analysts call “smart accumulation” — a quiet recovery phase before a broader uptrend.

Conclusion: The Market’s Momentum Has Changed

The message from recent weeks is clear: gold is cooling, and NEPSE is warming up. Investors who once sought safety in metal are now rediscovering opportunity in equity.

This isn’t just about prices — it’s about psychology. As confidence returns and liquidity improves, Nepal’s market is entering a more balanced phase where risk and reward coexist.

The best strategy now? Stay informed, stay disciplined, and use every dip to your advantage. The transition from gold to growth has begun — and smart investors are already positioning for Nepal’s next bull wave.