Equities now appear pale in the shadow of gold's glittering returns

This is the best 12-month period for gold in the international market since May 2006 when yellow metal had rallied 54.6 per cent between May 2005 and May 2006

Gold has emerged as a superior asset class for investors as volatility and uncertainty continue to weigh on the equity markets.

 

The spot price of gold in the international market has surged nearly 52 per cent over the past year, compared with a 0.9 per cent decline in the Dow Jones Industrial Average, the United States’ benchmark equity index. In the same period, gold prices in India have risen 38 per cent, sharply outperforming the 6.9 per cent gain in the BSE Sensex. These figures exclude dividend yields.

 

According to data from the Wall Street Journal, the Dow currently offers a dividend yield of 1.87 per cent, while the BSE Sensex yields 1.15 per cent at prevailing levels.

 

The yellow metal’s blistering rally has intensified in recent months, with international prices approaching $3,500 per ounce on Tuesday. In Delhi, domestic gold prices jumped by around ₹1,800, crossing the psychologically significant ₹1 lakh mark per 10 grams amid a surge in buying by jewellers and stockists. The buying spree was fuelled by expectations of robust seasonal demand during Akshaya Tritiya and the upcoming wedding season, even as global macroeconomic headwinds kept investors chasing safe-haven assets, according to the All India Sarafa Association. 

 

In Mumbai, standard gold was quoted above ₹98,000 per 10 grams.

 

The current rally marks the strongest 12-month performance for gold in the international market since May 2006, when the metal had soared 54.6 per cent in a year. In India, it represents the best one-year rally since the July 2019-July 2020 period, when prices had climbed 54 per cent.

 

With its recent gains, gold has outperformed equities over both short and long terms. Its long-term edge over US equities, in particular, stands out: Over the past 25 years, the price of gold in the US spot market has surged 12.7 times, compared with a 3.6 times increase in the Dow during the same period. This equates to a compound annual growth rate (CAGR) of 10.7 per cent for gold investors, more than double the 5.2 per cent CAGR posted by the Dow. The price of gold has climbed from $273.6 per ounce in April 2000 to $3,471 currently.

 

Over the past decade, gold in the US has delivered a CAGR of 11.4 per cent, ahead of the Dow’s 7.9 per cent annualised gain.

 

In India, gold has fared even better over the past 25 years, aided by a steady depreciation of the rupee against the dollar. The BSE Sensex, however, has also outperformed the Dow in local currency terms during this period. The domestic gold price has posted a CAGR of 13.3 per cent, climbing from ₹4,350 per 10 grams at the end of April 2000 to ₹98,484 per 10 grams as of Wednesday (according to India Bullion and Jewellers Association), excluding applicable taxes.   

 

The BSE Sensex, by comparison, has risen at a CAGR of 12 per cent, from 4,658 in April 2000 to 79,596 as on Tuesday.

 

Over the past 10 years, gold in India has appreciated at a CAGR of 13.8 per cent, outpacing the Sensex’s 11.4 per cent annualised return. However, in the past five years, the trend has reversed. The BSE Sensex has gained 136 per cent since April 2020, compared to a 116.2 per cent increase in domestic gold prices over the same period.

 

Analysts attribute the sustained rally in gold to a flight to safety by global investors seeking protection against geopolitical risks. “The rally is largely driven by geopolitical uncertainty and the absence of any constructive progress in tariff negotiations between the US and China. Until there is a concrete update indicating de-escalation, gold is likely to remain elevated,” said Jateen Trivedi, vice-president and research analyst, Commodity and Currency, at LKP Securities.