
The golden illusion: Know the risks behind gold's safe haven image
Tired of too many ads?
Remove Ads
Over the past 15 years, gold has delivered an annualized return of 10.73% as compared to 12.49% from equities and over the 5-year period ending 31st March 2025, gold has delivered a CAGR of 14.03% vs 26.23% return in equities. A significantly higher return in equities over the past five years is also on account of lower base five years back, post the covid led market fall. This also reflects in the performance of equities in the previous five year period, i.e. from March 2015 to March 2020, which was one of the worst periods for equities with an annualized return of just 1.29% vs 9.65% in gold.
In terms of downside risk, the maximum drawdown (maximum loss) that a gold investor would have experienced during this 15-year period is 29.47% - from 28th August 2013 to 31st July 2015. In comparison, the maximum drawdown in equities was 38.11% during the beginning of the covid pandemic which was 17th January 2020 to 23rd March 2020.
More importantly, while gold may be a little less volatile than equities, unlike the common perception of gold being a safe-haven asset, it does exhibit reasonably high volatility, especially when compared to less volatile or safer asset classes such as fixed income. The 15-year annualized volatility of gold at 14.95% is only marginally lower than volatility of 17.11% in equities.
What's interesting, however, is that there has been a negative correlation between equities and gold, which makes it a great asset class to complement equities, in order to reduce overall portfolio volatility and improve risk adjusted performance. The 15-year correlation between the two asset classes is -0.22.
The golden takeaway for investors
Tired of too many ads?
Remove Ads
Most investors perceive gold as a safe-haven asset and this belief has only strengthened in recent times, as there has been a significant surge in the gold prices amidst the global economic uncertainty. As a result, the demand for gold has skyrocketed, and with Akshaya Tritiya around the corner, many investors are likely to flock to invest in the precious metal. However, beneath the perception that gold never loses its shine, many investors tend to overlook the risks involved while investing in gold. So, if you are planning to invest in gold, do ask yourself an important question before investing - Have I truly understood the risk involved?And to help you assess the risk-reward associated with gold investing, we studied the past 15-year price data (from 31st March 2010 to 31st March 2025) of gold and also compared it with equities , which is often considered to be one of the riskiest asset classes. Here's what we found:Data source: Ace MF, NSE. Performance of gold is represented by NAV of Nippon India ETF Gold BeES and performance of equities is represented by Nifty 500 TRI. Annualized volatility is calculated as standard deviation of the monthly returns multiplied by square root of 12. The volatility in gold prices in INR is influenced by various factors including international gold prices, dollar movement vs INR, import duty, taxes, etc. Past performance is not an indicator of future results.While gold is often seen as a safe haven, the historical data on volatility and drawdowns suggest it's not without risk. However, its negative correlation with equities makes it an interesting asset class for diversification , helping smooth out overall portfolio performance. As such, investors will do well not to go overboard with gold exposure but to have a 10-20% allocation as a smart complement to equity and fixed income holdings in the portfolios.(The author Nilesh D Naik is Head of Investment Products, Share.Market (PhonePe Wealth). Views are own)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Mint
4 hours ago
- Mint
NSE gets Sebi nod to launch electricity derivatives
The National Stock Exchange of India (NSE) has received approval from the markets regulator to launch monthly electricity derivatives contracts, said the exchange in a filing. Plans are underway to gradually introduce contracts for difference (CFDs) and other long-duration electricity derivatives such as quarterly and annual contracts, subject to regulatory approvals, Ashishkumar Chauhan, NSE managind director (MD) and chief executive officer (CEO), said. The filing said that the launch of monthly electricity futures will provide market participants with effective hedging tools against electricity price volatility, enable more accurate price signals in the power sector, and encourage capital investments across the electricity value chain—generation, transmission, distribution, and retail. Electricity derivatives gain prominence as India's journey toward achieving its net-zero emissions target demands substantial investment, estimated at over $250 billion annually until 2047, according to a Niti Aayog report. 'By 2030, renewable energy sources such as solar and wind are expected to contribute over 50% of the nation's installed power capacity. A robust and dynamic electricity derivatives market is essential to attract this scale of climate finance from both domestic and global investors,' the release said. 'A calibrated and phased approach will ensure both market integrity and investor confidence. It is crucial for the spot and futures electricity markets to evolve in tandem to create a virtuous cycle of liquidity and stability. A financially settled futures market will allow participants to hedge their risks effectively, while a robust day-ahead spot market will ensure reliable price discovery,' Chauhan said. 'Our strong understanding of both spot and derivatives markets uniquely positions us to build an integrated and liquid electricity derivatives market,' NSE said in the release. Recently, the Multi Commodity Exchange of India (MCX) also received approval from the Securities and Exchange Board of India (Sebi) to launch electricity derivatives. MCX's shares had risen over 5% and reached a record high of ₹ 7,820 on the BSE after the exchange obtained regulatory clearance to introduce electricity derivatives on 9 June.


Time of India
5 hours ago
- Time of India
Wipro promoter entities swap 1.72% stake worth Rs 4,675 crore
Live Events (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel New Delhi, About 18.05 crore shares of Wipro , amounting to a 1.72 per cent stake, were exchanged among promoter group entities through open market transactions on Wednesday, according to the exchange the share sale, Wipro shares appreciated by 1.61 per cent to close at Rs 258.95 apiece on the BSE. The stock settled 1.62 per cent higher at Rs 259 per piece on the National Stock Exchange (NSE).According to the block deal data on the NSE, promoter entity Azim Premji Trust sold a total of 18.05 crore equity shares or 1.72 per cent stake in Bengaluru-based Wipro. The transaction valued at around Rs 4,674.77 crore, was executed at an average price of Rs 258.99 per Prazim Traders and Zash Trader (part of Wipro's promoter group) bought these shares at the same Monday, Azim Premji Trust offloaded 20.23 crore equity shares or 1.93 per cent stake in Wipro. The transaction, valued at around Rs 5,057 crore while Premji Invest through its arms Prazim Trading and Investment Company, Hasham Traders and Prazim Traders bought these November last year, Premji Invest through Prazim Trading and Investment Company purchased 8.49 crore shares or 1.6 per cent stake in Wipro for Rs 4,757 crore, while Prazim and Zash Traders offloaded an equal number of shares in the IT company.


Economic Times
5 hours ago
- Economic Times
Wipro promoter entities swap 1.72% stake worth Rs 4,675 crore
New Delhi, About 18.05 crore shares of Wipro, amounting to a 1.72 per cent stake, were exchanged among promoter group entities through open market transactions on Wednesday, according to the exchange data. ADVERTISEMENT Following the share sale, Wipro shares appreciated by 1.61 per cent to close at Rs 258.95 apiece on the BSE. The stock settled 1.62 per cent higher at Rs 259 per piece on the National Stock Exchange (NSE). According to the block deal data on the NSE, promoter entity Azim Premji Trust sold a total of 18.05 crore equity shares or 1.72 per cent stake in Bengaluru-based Wipro. The transaction valued at around Rs 4,674.77 crore, was executed at an average price of Rs 258.99 per share. Meanwhile, Prazim Traders and Zash Trader (part of Wipro's promoter group) bought these shares at the same price. On Monday, Azim Premji Trust offloaded 20.23 crore equity shares or 1.93 per cent stake in Wipro. The transaction, valued at around Rs 5,057 crore while Premji Invest through its arms Prazim Trading and Investment Company, Hasham Traders and Prazim Traders bought these shares. In November last year, Premji Invest through Prazim Trading and Investment Company purchased 8.49 crore shares or 1.6 per cent stake in Wipro for Rs 4,757 crore, while Prazim and Zash Traders offloaded an equal number of shares in the IT company. (You can now subscribe to our ETMarkets WhatsApp channel)