Gold's decadal returns among the worst in history
1 min read 22 Sep 2022, 11:06 PM ISTWith a return of just 3.4% in rupee terms in the 10 years ending 16 August, gold investors have been unable to even beat inflation
PremiumGoldhas had a difficult decade. With a return of just 3.4% in rupee terms in the 10 years ending 16 August,goldinvestors have been unable to even beat inflation. This is highly unusual for the precious metal. A Mint analysis of 10-year rolling returns forgold(based on WorldGoldCouncil price data) shows it has delivered a 10-year return lower than 3.4% CAGR only 3% of the time if you look at data starting 1979-89.
On an average,goldhas fetched a 10-year return of 9.8%. Its worst 10-year was 1980-1990. This was when Fed chairman Paul Volker raised rates to unprecedented levels and slew inflation.
Positive real interest rates raised the cost of keeping money in a non-interest-bearing asset likegold. Over this decade,goldwas stagnant with a CAGR of just 0.6%. Its best 10-year period was from 30 November 2001 to 30 November 2011 with 21.3% returns.
The year 2001 marked the bottom of the dot-com crash, a powerful starting point for most assets. Asset prices, including that ofgoldrose throughout the following decade, with some brief interruptions such as the 2008 crisis. In 2011,goldprices surged on a bout of inflation that resulted from central bank money printing, marking a top for the precious metal.
Although its current 10-year return is not at its worst, it certainly sits in a small category.
According to Navneet Damani, senior VP – Commodity Research at Motilal Oswal Financial Services, the rise in inflationary pressure could continue for the next few months. “Medium-term under performance could continue, however in the long rungoldis likely to beat inflation," he says. Damani adds, “We continue to maintain a neutral stance forgold, because along with the negatives, factors such as geo-political tensions, fears about slower global growth, central banksgoldbuying activity etc. could lend support to prices."
So, should one continue to invest ingold? According to Vishal Dhawan, founder & CEO, Plan Ahead Wealth Advisors,goldprotected investors against adverse movements in other growth assets like equities and against a depreciating rupee which has happened fairly consistently over the years. “This means investors should continue to allocate 5-10% of their portfolios togold. They need to have at least a 10-year investment horizon."
