Short Call: Rush to buy gold, but what are investors running from? CEAT, ONGC, Dixon Tech in focus

Gold prices surged 3.6 percent in August.

While the stock market is stealing the spotlight with its recent bull run, the commodity market is throwing its own party. There we’ve got the yellow metal--Gold—making quite the comeback, climbing to near-record highs.

Even as stocks get drunk on optimism, the rush to buy gold signals that all might not be too well as there are lingering concerns that are pushed under the carpet. While optimism over US Fed's rate cuts is all fine, but uncertainty still looms over the Bank of Japan's rate trajectory ahead and how it may change the dynamics between the yen and the dollar.

Another source of uncertainty stems from the US elections and how their results may change the course of policy decisions and the relationship between the world's two largest economies. Along with that, we have a geopolitical crisis in the play in the Middle East and Eastern Europe.

Gold investors seemed to have scratched beyond the upper surface and hence, have begun hedging their bets by stacking up on gold, according to the World Gold Council. "In this uncertain environment, it is no surprise that investors have taken to the gold options market to hedge against or speculate on these seemingly binary outcomes," the World Gold Council wrote.

Historical data also supports the hypothesis that a surge in gold prices is often an indicator of an imminent interest rate policy shift or a market risk event as highlighted by the World Gold Council. Today, however, we face both.

Going by the growing uncertainty, it is only reasonable that investors are more focused on the near-term outlook and hence have chosen to hedge their positions. According to the World Gold Council, this trend will likely extend as investors will continue to view gold as a hedge against immediate event risks while also positioning it as a beneficiary of lower interest rates.

Dixon Technologies (Rs 12,775.05, +2%)

CLSA, HSBC raise target price on Dixon Technologies following HP India deal.

Bull Case: Some next big drivers of growth would be industrial EMS, while Dixon Technologies is looking to expand through both the organic and inorganic route if any opportunities arise. The contract manufacturing players aspires to capture around 20-25 percent of the market share in the laptop segment over the medium term.

Bear Case: Dixon’s stock has sharply rallied by +140% in one year, making the risk-reward ratio look stretched. The sales growth is primarily driven by the mobiles segment, which is under PLI, while either segments like Consumer Electronics and Lighting posted muted sales. Also, any softness in discretionary demand warrants caution.

ONGC (Rs 286.90, -3%)

Stock fell on profit-booking as crude prices neared a three-year low

Bull Case: ONGC’s near-term production is set to increase with contributions from KG-98/2, Mumbai High North Redevelopment Phase-IV, and CBM fields. Despite past challenges, these projects and enhanced recovery techniques could improve output, though long-term growth remains uncertain.

Bear Case: ONGC's production suffers from declines in mature assets and execution delays in KG-98/2. The windfall cess caps realizations, and geopolitical risks from assets in Sudan and Syria add uncertainty. Lower crude prices could further strain earnings and gas realizations.

CEAT (Rs 2,858 , +1%)

India Ratings upgrades outlook to 'positive' from 'stable'

Bull case: After registering 9 percent volume growth in Q1, the outlook is set to improve with expectation of double-digit replacement growth and continued exports recovery. The ongoing revival of two-wheelers and export thrust are added growth drivers. Calibrated capex spends would further help strengthen balance sheet.

Bear case: Sharp increases in commodity prices like rubber price increase or any prolonged slowdown in exports can hinder the re-rating of the stock. While tyre imports continue to be restricted, any relaxation in the stance can increase competitiveness from imports and impact growth prospects of domestic players.

(Inputs from Lovisha, Harshita and Zoya)