Gold as an asset class has always evoked very strong views, with a large section of equity market experts having a very negative view on the precious metal. The most famous one, of course, is billionaire value investor Warren Buffett. Buyers purchase these assets, according to Buffett, with the hope that someone else will pay more for them in the future.
I started looking at gold in 2010 and made my first investment in 2013, when the asset class corrected for two consecutive years, after a dream run during the previous ten years. One of the main reasons for me to invest in gold was to 'Hedge against INR currency depreciation'. Since 2010, INR has depreciated on an average by around 5%.
Before we go any further, lets looks at some facts about gold:
1) The rough annual demand for Gold, globally, is around 4,000 tonnes, with China + India accounting for around 40% of the buying.
2) Central banks globally have doubled their gold purchases since the start of the Russia-Ukraine war in 2022. Currently, central banks account for almost 25% of the global demand.
3) The rough estimate of gold held by Indians is around 25,000-30,000 tonnes, valued at around $2.5 trillion, which is 65% of our GDP. Just in 2024 alone, Indians invested in gold were richer by $375 billion or Rs 32 lakh crore.
Gold (in INR) has had a dream run (see table) and has matched Sensex returns for most of the timeframes. These returns have come with a much lower volatility. In the last 20 years, gold has had only four negative years, with no double-digit negative return years. Compare this to Sensex, which has had two 25% plus negative years (-52% in 2008 and -25% in 2011).
| Dec 31, 2024 | Gold | Sensex |
| One Year | 20.6% | 8.2% |
| Five Years | 14.2% | 13.6% |
| 10 Years | 11% | 11% |
| 15 Years | 10.6% | 10.5% |
| 20 Years | 13.7% | 13.2% |
So where now, from here? Projecting future returns is always difficult, and a tricky proposition. If I were to take a medium-term outlook for say five years, a 10-12% CAGR returns for gold (INR terms) may not be that difficult to achieve, for the following reasons:
1) Post the pandemic, most central banks and goverments have had a very loose monetary and fiscal policy which has led to a substantial printing of currency. This may not change in a hurry and is one of the reasons for likes of gold and bitcoin doing well.
2) Central banks have now doubled their gold purchases over the last few years, and RBI has started to transfer physical gold back to Indian shores. Countries are trying to diversify from USD treasuries to other asset classes, to park their currency surplus. The Ukraine-Russia war has pushed other countries to look at safe haven options. One of the most challenging geo-political tensions in decades has led a return to gold as a neutral reserve asset.
3) There is a potential of a trade war with China under the new Trump regime. It is expected that China could devalue its currency if US were to imposes stiff tariffs . This can result in a potential INR currency depreciation also.
I have held this view for a while that at least 10% of the financial savings should be invested in gold. The best way to invest is through a Gold Mutual Fund or a Gold ETF. The Sovereign Gold Bond (SGB) is also a very good option to invest in gold, but unfortunately, the government has stopped issuing further SGBs. Centre has also rationalized the taxation for investing in gold, with Long-Term Capital Gains tax now at 12.5%.
One can safely say that women in Indian households have been one of the best financial planners. For years, they invested in gold and have created substantial wealth, valued now at around $2.5 trillion.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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