Is Gold “really” Glittering ?

Gold is in a phenomenal bull run. Since the beginning of this year, its up 10% and in last year or so it has gone up by 34%, Since the Covid days its up a full 106 % and since 2014, its up almost 200% (~195%).

Given these kinds of returns, it’s natural that we get excited and want to jump ship from one asset class to other or over allocate to an asset class. To make matters worse, the Equity returns over the last 18 months have tumbled, making Gold returns look all the more mightier. 

So, its not really a bad time to “Stress Test” Gold and see if it’s really Glittering? 

We are firm believers that any investment that we make should be looked at from a long-term view meaning starting with a minimum 5 years and then we move on to higher periods. As soon as the investment is ear marked for a long term period, its natural that the investment is made in to equity as we are again firm believers that over longer periods of time , equities outperform other asset classes. 

The Stress Test then for us would be to compare the gold returns with that of equity. But before we do that, let’s give a context to the start points we have chosen. The performance of any asset class depends mostly on significant global/national event that takes place at different point. 

In keeping with that thought, significance of – 

2013 – Formation of a Central Govt in India with a popular mandate after 20 years of coalitions Govts. Popular mandate was backdrop of Economic development and better national security rather than freebies or other factors 

Covid – A once in a century pandemic that threatened to wipe off the population from the face of earth. 

2024 – The Rally in gold has been significant since Jan 2024 that makes Gold returns outsized. 

YTD – Gold saw a continuation of rally.  

Even after considering a key event like Covid, Equities have still out performed gold by a healthy Margin of 50% & ~80%. Now another thing that we need not – 

1. The outperformance of Equities comes despite ~32% outperformance by Gold over equity in last 12-15 Months
2. The comparison is only with Nifty50, the Other Indices or a well constructed portfolio of Mutual funds would have done far better. 

So is the Gold really glittering, over short term yes it is but Didn’t we say that any investment needs to be looked from a long term view. So, the real question should be - Over long term have Gold Returns outshone equity? It seems, at least for now, The Gold is not really glittering. On the hindsight, We can says its just catching for past under performance. 

Should I not buy GOLD now? Of course you can buy. The intent of this post is to show people that in the long run equities does well, really well! When Gold and Real estate doesn't do well or underperform we don't rush to sell them. All that we say is, treat Equities like how you treat Gold and Real Estate. Never panic looking at the short term volatility. Keep investing and do INCREASE your SIP when the markets are down 15% like how it is today. If markets correct to an extent of 20 to 25% then do a lump-sum investment as well. This simple change in your investment behaviour will help you achieve excellent returns 3 to 5 years later. But the problem is, people don't do it fearing that they would lose everything. Keep a good mix of asset class in your portfolio and don't be judgemental or biased towards a specific asset class based on your bad experience.

Before you jump wagons, boats & asset classes and think of buying Gold, Ask yourself what’s the Investment for? Therein lies the answer where the money should go and not the recent performance of any asset class.

 

For any financial Planning queries, Please contact Droplet Wealth at invest@dropletwealth.com.