When Interest Rates Fall, Gold Shines Bright
The future of the markets might be gleaming with gold, and it all hinges on interest rates. This article dives into historical trends and unveils a compelling reason why gold could outperform stocks when interest rates take a dip.
The Chart Tells the Story: Take a look at three charts: the Fed funds rate, the gold-to-Nifty ratio, and the gold-to-S&P 500 ratio. Over the past 25 years, whenever interest rates cycled down, gold significantly outperformed both Nifty and S&P 500.
History Repeats Itself (Thrice): Let’s rewind. In 2000, when interest rates plunged, the gold-to-Nifty ratio doubled, meaning gold grew twice as fast as Nifty. A similar story unfolded in 2008 and 2020, with gold outperforming equities by two to three times.
The Logic Unfolds: As interest rates fall, the cost of holding cash (which earns no interest) decreases. This makes gold, a non-interest-bearing asset, more attractive. Additionally, lower rates can stimulate economic growth, potentially pushing up gold prices due to its perceived safety net value.
The Current Scenario: With interest rates currently at 5.25% and poised to decrease, the stage is set for another potential gold rally. This could translate to significant outperformance compared to equities, as seen in past cycles.
The Takeaway: This historical analysis suggests that incorporating gold into your portfolio when interest rates decline could be a wise move. As the Fed navigates future rate decisions, keep an eye on the gold-to-equity ratios for valuable insights. Remember, this is not financial advice, and thorough research is crucial before making any investment decisions.
WeekendInvesting Strategy Spotlight – Mi NNF 10’s impressive lead over it’s benchmark – Nifty Jnr
Mi NNF 10 has continued to be an exceptional performer for WeekendInvesting maintaining its consistent lead over the benchmark – Nifty Jnr index. Despite the short slump around Oct’22 – Jan’23, Mi NNF 10 has put on a superb recovery in FY 24 to once again claw back in to the 30%+ CAGR territory (12 Nov 2020 to 22 Feb 2024)
The important point to note is the healthy outperformed achieved by the strategy over the Nifty Jnr Index right since start.
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