Gold Outperforms Equities and Real Estate Over 20-Year Period: Report

Investment in gold has outperformed most asset classes in terms of compounded annualized returns over the long-term, according to a note by FundsIndia. While Indian equities provided a compounded annual return of 13.5% over 20 years (as measured by the Nifty 50 Total Return Index, or TRI), gold (in rupee terms) surged by 15% during this period.

Real estate, with a CAGR of 7.8%, and debt at 7.6% were at the bottom of this pyramid, according to the FundsIndia study. The return from Indian equities (in rupee terms) at 13.5% over 20 years was lower than the 14.8% CAGR return given by US equities as measured by the S&P 500 TRI in rupee terms, data shows.

The demand for gold, explains G Chokkalingam, founder and head of research at Equinomics Research, has been driven by central bank buying across the globe, which kept prices on an upward trajectory. “That apart, gold’s safe-haven appeal never dulled for retail investors in the last few years amid aggressive central bank policies, geopolitical concerns, rupee depreciation, and steep equity valuations,” he said.

Over a shorter duration of 5 years, the CAGR return from gold was even better at 23.2% compared to 16.5% for Indian equities and 19.6% for US equities, the FundsIndia report suggests. Despite the stellar returns, experts see more headroom for gold prices in the year ahead, which they believe will be led by firm demand amid safe-haven buying as geopolitical risks take center stage.

The other factors driving gold prices upwards include challenges in mining, limiting production, and ultimately affecting supply when demand remains high. “It’s predicted that by the end of 2026, gold could rise to $5,000 per troy ounce. Global central banks are expected to maintain their gold buying momentum, which will be key to gold hitting that $5,000 value mark. Gold will continue to see significant rise, especially if current inflation and uncertainty trends persist,” said Rick Kanda, Managing Director at UK-based The Gold Bullion Company.

With the equity segment back home, the 20-year CAGR return from mid and small-caps at 16.5% (Nifty Midcap 150 TRI) and 14.3% (Nifty Smallcap 250 TRI), respectively, was higher than the 13.8% for large-caps (Nifty 100 TRI), according to the FundsIndia report. There has been a structural change in the last 10 years in how and where Indian retail investors put their money, Chokkalingam noted, with most preferring the mid and small-cap segments to make a quick buck.

“The retail investor base 10 years ago was around 6-6.5 crore, which has swelled to over 20 crore now. Most investors invest in the small and mid-cap universe to make quick money. That said, the economic growth over the years has also helped companies in these two segments score over their large-cap peers, which translated into superior market returns for the small and mid-caps,” Chokkalingam added.