Overview of gold investment and its historical performance

Hi Readers,

Hope our previous article on the importance of Nomination was informative and useful for some of you. If you have not yet had the chance to read the same, you can find it here.

This week, we would like to share our thoughts on Gold – India’s evergreen love.

Gold – A metal that is most popular among the ornamental metals has never lost its glory. And the global pandemic is no exception. As a passionate investor, many of you might have already been into gold already. However, the following article will help you make an appropriate investment choice in gold that is tailored for you.

Why Gold is precious

Being a derivate product of a natural resource, gold like oil resources is not abundant. The reasons people tend to make a gold investment are also diverse, as gold is simply ingrained in some cultures as a form of wealth and saving, whilst in other countries and for other individuals, it’s more about hedging financial market risks, as well as wanting to hedge against rising inflation.

Advantages of Investing on gold

Immune to inflation

Gold has historically been an excellent hedge against inflation, because gold has an immune system that withstands the tremors of a global economic crisis. Over the past 50 years global investors have seen gold prices soar.

High on demand - In-spite of holding an uptrend in market price most of the times, the demand for this metal superstar has always been there no matter what. The most important reason is that Gold is held prestigious in many cultures of the world, especially in countries like India where almost no auspicious moments are complete without the presence of gold.

Liquidity - Another factor that makes your choice of investing in gold is its liquidity. In any investment, the ease with which you can buy and sell an asset plays an important role, and with over USD $100bn in daily commodity trade is one of the easiest of assets to buy and sell at any time.

Diversification - The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

 

  • The 1970s was great for gold, but terrible for international stocks.
  • The 1980s and 1990s were wonderful for stocks, but horrible for gold.
  • 2008 saw stocks drop substantially as consumers migrated to gold.

 


 Source: www.goldprice.org

Historical Gold Performance

In the year of 1974 the gold index was formed 1 ounce (28.35 grams) = 100 US dollars. If you see the above the chart from 1974 – 1981 the gold price moved from 100 USD to 850 USD which is a compounded annual return of 35.7% after which gold price hit a bottom of 350 USD in the year 1983. If you see the chart closely from 1983 – 2002 for about 19 years there was not much appreciation in gold price. In another analysis from 1981 – 2008 in fact gold was underperforming, there wasn’t any appreciation, having said that gold has delivered a positive return of 7% per annum since inception.

Why this international correction has not had a greater influence on the gold price in India.

In spite of the fluctuations in international gold price, it did not had any impact in India as the Indian currency (INR) has been depreciating consistently against the US dollar year on year that negated the depreciation of gold price and made gold prices to not fall down in accordance with international gold price in India. You can see the chart below for the years 1973 – 2020 how the US dollar has appreciated against Indian currency year on year.

1973 - 1 US Dollar = Rs. 7.63

2020 – 1 US Dollar = Rs. 73.77

 



 

Source: https://www.chartoasis.com/usd-inr-historical-data-download-cop0/

Types of Gold Investments

Physical Gold- Jewelry, Coins and Bars

Gold Exchange Traded Funds (ETF) and Exchange Traded Commodities

Gold Funds – Investment made in gold mining companies

Should you start investing in gold?

The answer is yes, you must allocate certain amount of funds periodically to invest in gold as an asset class. However, the percentage of investment in gold or any other asset for that matter varies from one individual to another. You need to customize your investment based on your overall income, expenditure, short term and long term goals.

So far, we saw the historical performance of gold, benefit of investing in gold and types of investment options available in gold as an investment. Our next articles we shall take a detailed look in to the Gold exchange traded funds and gold mutual funds.

 You can also let us know which topic you would want us to write in the comment box below.

Comments

  1. UnknownOctober 1, 2020 at 1:17 AM

    👍

    ReplyDelete
  2. UnknownOctober 1, 2020 at 7:03 AM

    Wonderful post. Meticulous and in-depth writing. A detailed discussion about the current and future trend analysis of gold investment would complete it perfectly.

    ReplyDelete

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