Gold or Nifty, which of the two offers a better investment opportunity?
Should gold be part of your long-term investment portfolio or should it be only stocks?
From 19/03/2007 to today (14/06/2021), Gold has 11.13% CAGR while Index has 10.77%.
In sort, Gold has even beating the index in terms of returns as well as it has a better Sharpe ratio. (based on the data of this period.)
- These are some of the most frequently debated topics among the investor community. If we take a look at the performance of gold versus equity investment over the last few years, gold had been blazing the trail alone, leaving equities way behind from 2007 to 2013.
- But since 2014, things have taken a sharp turn and equity returns are beating gold returns by a huge margin. So what was fueling gold outperformance prior to 2013? As gold is an inflation hedge, its value appreciates in high inflation scenarios and economic downturns.
- If inflation of any country increases, investors buy gold to balance their portfolio, and gold price moves up. So, during inflation i.e. from 2007 till 2013 the gold prices were rising and the stock prices were falling.
As the economic scenario started to improve post-2013, the trend reversed. The same is evident in the Gold vs Nifty chart above.
- There was a huge divergence between gold prices and nifty in 2012-2013 wherein gold was in a strong uptrend while nifty was either flat or in a downtrend (An ideal time to sell gold and buy stocks).
- We witnessed the same divergence in nifty and gold prices in 2015 (gold prices continuously going down and nifty moving up).
As smart investors, we should brace ourselves for slowly moving out from overpriced equity and entering into underpriced gold and vice versa whenever such divergence occurs!