Gold prices have been on the boil. Over the last year, they have risen by more than 25% in the domestic and world markets, aided largely by weak currencies and uncertainties over the pace of economic recovery. India, which is the world?s largest consumer of gold, has seen both prices and demand rise over the last decade.
According to a report by the World Gold Council (WGC), over this decade, the value of gold demand in India has increased at an average rate of 13% per year, outpacing the country?s real GDP growth by almost 6%, inflation by 8% and population by 12%. In 2009, Indian demand reached $19 billion?this was as much as 15% of the total global market.
Of the 30% of total income saved by Indians, almost 10% is in the form of gold. It is no wonder that in the 1, 3 and 5 year periods ending September 2010 (as shown in the figure), gold has outperformed all BSE indices. Of these indices, BSE500 has been the worst performer when compared to gold and it has given negative returns in the 1, 3 and 5 year periods.
The 30-share Sensex and the BSE metal index, which comprises the major metal companies, have managed to just about stay in the positive territory as compared to gold in the 5 year period ending September, 2010.Gold has provided an average annual rate of return of 37% over this 5 year period. Compare this to the just 1%that BSE Sensex has managed to deliver.