Should you buy gold this Akshaya Tritiya? Avoid investing in gold purely based on its recent performance - here's why
Gold's ability to deliver high long-term returns significantly declines over time. (AI image)
By Chethan Shenoy
Gold buying on Akshaya Tritiya
: Traditionally, Gold has always been considered a safe haven asset for investors, offering protection during times of uncertainty. But it is important to understand that it a sentiment driven asset.
The price of gold is not driven by underlying fundamental metrics, but by demand and supply.
Gold has a tendency to perform in cycles and its recent performance has come in the last 5 years due to global uncertainty, rising inflation, geopolitical tensions, and strong central bank demand. Investors tend to purchase based on recent performance, exhibiting recency bias, which often leads them to buy at the peak.
They should avoid investing in Gold purely based on its recent performance.
We analysed the different probabilities of CAGR of Nifty vs. Gold over different time frames:
Probability of Return
5 year
7 year
10 year
15 year
Nifty
>10%
66.05%
62.48%
62.17%
63.18%
>12%
41.81%
34.34%
38.07%
23.74%
Gold
>10%
49.73%
29.16%
13.53%
60.38%
>12%
38.05%
16.92%
0.58%
0.00%
Gold's ability to deliver high long-term returns significantly declines over time. The chance of earning over 12% CAGR from gold is just 0.58% over 10 years and drops to 0% over 15 years. Despite similar volatility to equity, its long-term upside is limited, making it less rewarding on a risk-adjusted basis.
In comparison, Nifty delivers more than 12% CAGR in 38% of 10-year cases and 24% of 15-year cases, making it a more dependable choice.
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It is far more consistent across 5, 7, 10, and 15 years.
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India has the world's 7th highest gold reserves! Why is RBI buying gold and how does it help the Indian economy?
When considering long-term wealth creation, Nifty maintains a much stronger probability of beating inflation and compounding wealth versus Gold, which becomes highly unreliable over time.
Therefore, while gold can help hedge risks, over-reliance may limit growth. We recommend a portfolio with 80:20 in equity to debt.
Thus, investing in Gold this
Akshaya Tritya
is not recommended. If you still wish to invest in gold, invest only via
Gold ETFs
, and not FoFs or any other mode, and keep exposure to 5-10% of your total portfolio.
(Chethan Shenoy is Executive Director & Head - Product & Research, Anand Rathi Wealth Limited)
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