Personal Finance

Gold Is Forever – A Little Bit of History2 min read

June 23, 2021 2 min read

Gold Is Forever – A Little Bit of History2 min read

Reading Time: 2 minutes

Gold has been a popular commodity for as long as we all remember.

Gold has been synonymous with power and wealth for generations, be it any culture in the world. From Chinese dynasties to Roman treasure hoards to ancient Egypt.

Coming to Indian culture too, gold has been more deep rooted more than any other commodity. Our love for gold has only grown year by year.

From owning physical gold, our love has now evolved to gold as an investment. Gold is a clear complement to equities, bonds and broad-based portfolios. Investors have long considered gold an essential and trust-worthy asset during periods of uncertainty.

Perceptions around the commodity have changed substantially over the past 2 decades due to a worldwide acknowledgement of gold’s role within an institutional investment portfolio.

But why?

Let’s talk data.

Gold has also outperformed most broad-based portfolio components over the past decade.

gold beats other investments

Returns from 31 December 2010 to 31 December 2020
Source – Bloomberg, ICE Benchmark Administration, World Gold Council

Gold has performed well over the past decade, despite the strong performance of risk assets

gold 10 year growth

 

Returns in Rs from 31 December 2010 to 31 December 2020
Source – Bloomberg, ICE Benchmark Administration, World Gold Council

The gold price tends to increase in periods of systemic risk

gold vs VIX

*The VIX is available only after January 1990. Returns in US dollars. For events occurring prior to that date annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987 – 11/1987; LTCM: 8/1998; Dot-com: 3/2000 – 3/2001; September 11: 9/2001; 2002 recession: 3/2002 – 7/2002; Great Recession: 10/2007 – 2/2009; Sovereign debt crisis I: 1/2010 – 6/2010; Sovereign debt crisis II: 2/2011 – 10/2011; Brexit: 23/6/2016 – 27/6/ 2016; 2018 pullback: 10/2018 – 12/2018; COVID-19: 31/1/2020 – 31/3/2020.
Source: Bloomberg, World Gold Council

 

Here are a few reasons why investors include gold in their portfolio:

• Gold is looked at as a safe-haven asset.
• Gold serves both purposes – investment and a consumer good.
• The supply of gold is balanced, deep and broad.
• Gold does not degrade over time, unlike most traditional commodities.

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