The Case for Gold: A 23-Year Analysis of Returns
This fascinating chart from Incrementum offers a deep dive into the performance of gold in USD terms over the last 23 years (up to 2023). The results are striking, demonstrating why gold deserves a meaningful place in every investor’s portfolio. The data highlights the remarkable consistency of gold’s returns across time, often outperforming expectations.
Steady USD Returns Over Two Decades
The analysis shows that if you had invested in gold at the end of any month over the last 23 years, your annualized USD returns would have rarely fallen below 5%. Many periods on the chart, marked in darker green, indicate double-digit returns. In exceptional cases, like investing in December 2022 and holding until December 2023, gold delivered an incredible 27% return in USD terms. Adjusted for INR depreciation, this figure rises to 38% in rupee terms.
Gold’s Performance During Crisis Periods
Even in periods of global uncertainty, gold has proven its resilience. For instance, if you had invested during the COVID-19 crash in 2020, your USD CAGR would still have been 11.4%, with rupee depreciation adding another 3-4%. Over a longer horizon, such as a 20-year investment starting in December 2004, gold delivered 9.3% in USD terms, or approximately 12% in INR terms, making it one of the most stable and rewarding asset classes.
Gold’s Edge Over Volatility
Unlike equities, gold offers impressive returns with minimal volatility. It acts as a natural hedge against economic and geopolitical uncertainty. While equities are vital for portfolio growth, they are inherently tied to market cycles, and their performance can be unpredictable during downturns. Gold, however, has consistently provided steady returns, especially when other asset classes falter.
Rupee Depreciation Adds an Edge
One of the unique advantages for Indian investors is the consistent depreciation of the INR against the USD, typically around 3-4% per year. This gives gold an extra boost in rupee terms, making it an even more attractive asset for Indian portfolios. For instance, a USD return of 9% on gold becomes 12% when adjusted for rupee depreciation, ensuring inflation-beating growth over the long term.
Gold: A No-Brainer for Diversification
The data makes a compelling case for including gold as a significant part of a diversified portfolio. While equities are critical for long-term growth, relying solely on them ignores the stability and counter-cyclicality that gold brings. With consistent returns, minimal volatility, and its role as a hedge against currency depreciation and inflation, gold remains an indispensable asset class.
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