Gold outshines equities in the short run but how long will the rally last?

Gold holds at least a 2000 to 3000-year advantage over any other currency ever seen in the world.It won’t go down so easy.

gold vs equity
As expert's take on will the rally in the gold price last long. Representational image

By Amit Jeswani

Gold has had a volatile last couple of years. From being termed as a “Precious Metal with a Store of Value and a Safe Haven during times of Stress in the Markets”, to being called a “Dead Stock with no Cashflows”, Gold has seen it all. With the introduction of Bitcoin and NFTs people actually started believing that the time for Gold was done. However, one cannot ignore the fact that Gold holds at least a 2000 to 3000-year advantage over any other currency ever seen in the world. (It won’t go down so easy, will it?)

You will be surprised to see the Returns from Gold (INR Terms) v/s Nifty 50 and Gold ($) Terms:

Gold (INR) has actually been able to beat Nifty 50 over a 23 year period since 2000 where Nifty has continued to outperform Gold on a 3-13 Year Period. The returns of Gold (INR) have come on the back of 2 Elements: Gold price Appreciation and Rupee Depreciation against the Dollar. While Globally Gold prices have gone up by a mere 600% against Nifty 50 which has gone up 1158% over the last 23 years, Rupee has depreciated against the Dollar by almost 100% (1$= 40 Rs in 2000 and 1$= 80 Rs in 2023). This has allowed Gold to give the kind of returns that it has.

Also Read: Wedding season 2023: Is it a good time to buy gold?

Gold has individually done very well under the following circumstances:

  • Periods of Uncertainty- Gold has acted as a Safe Haven Asset during times of uncertainties in the Markets. People have mostly flocked to Gold during times of Global Recessions and Bear Markets. Look at the returns of Gold during the recent Stressful periods 2000- 100%, 2008- 170%, 2020-33%, 2022- 17.5%.
  • An Increasing Interest Rate Environment- An Increasing Interest Rate environment leads to fall in Earnings projections thereby causing Volatility in the markets, this allows Gold to be in favour as a more stable safe asset.
  • High Inflation/Stagflation- Gold has continued to perform during Inflationary and Stagflation environments as well. (1970’s was a period where US went through a Stagflationary Environment, Gold during that period went from $47 to $700)
  • Currency Depreciation- For India and Other countries specifically Currency Depreciation has led to Gold giving out returns more than the Equities. (Take India for example)

While such situations don’t come around quite often in the Market, They act like a Bull Market for Gold where the majority of the price-up move takes place, however even without the same, Gold has inched up continuously with the Equity markets as can be seen from the table above and the chart below:

Gold in the short term will be driven by the Macro Economic Scenario. We have to now take into account that in the last year the story of Cryptos and NFTs being the next big thing has gone for a toss with major frauds and losses occurring to Investors. Continued uncertainty in the Market should allow Gold to again become the preferred Safe Haven Asset. This should allow Gold to continue beyond the 2100 levels.

Also Read: City-Wise Gold and Silver Rates

However, if the Macros normalise the Rally here might be short-lived and Gold might go into another period of consolidation. However from an INR perspective, as we could see 50% of the move (Historically) has come from Rupee Depreciation, Some impact of the same will continue to have a bearing on the Gold prices as well move in 2023 and beyond.

History has shown Gold has given positive returns continuously, We have no reason to think otherwise for the future.

(The author is the founder of Stallion Asset, a portfolio management service firm. Views expressed are personal and do not reflect the official position or policy of Financial Express Online) 

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First published on: 11-02-2023 at 11:00 IST
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