Gold’s decadal returns among the worst in history


Goldhas had a difficult decade. With a return of just 3.4% in rupee terms over the 10 years to August 16th, gold investors have not even been able to beat inflation. This is highly unusual for the precious metal. A Mint analysis of rolling 10-year returns for gold (based on WorldGoldCouncil price data) shows that it has only returned a 10-year return of less than 3.4% CAGR 3% of the time, if one looking at the data from 1979 to 1989.

On average, gold has returned 9.8% over 10 years. The worst 10 year was 1980-1990. At that point, Fed Chairman Paul Volker raised interest rates to unprecedented levels and curbed inflation.

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Positive real interest rates increased the cost of holding money in non-interest bearing assets such as gold. During this decade, gold has stagnated at a CAGR of just 0.6%. Its best 10-year period was from November 30, 2001 to November 30, 2011 with a 21.3% return.

2001 marked the bottom of the dot-com crash, a strong starting point for most assets. Asset prices, including those of gold, rose during the following decade, with some brief interruptions such as the 2008 crisis. In 2011, gold prices rose on a surge in inflation stemming from central bank money printing, marking a peak for the precious metal .

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While the current 10-year yield isn’t the worst, it certainly falls into a small category.

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According to Navneet Damani, Senior VP – Commodity Research at Motilal Oswal Financial Services, inflationary pressures could continue to rise in the coming months. “The medium-term underperformance could continue, but over the longer term, gold is likely to outperform inflation,” he says. Damani adds, “We continue to maintain a neutral stance on gold as prices could be supported alongside the negative factors such as geopolitical tensions, fears of slowing global growth, central bank gold buying activity, etc.”

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So should we continue to invest in gold? According to Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors, gold protected investors from adverse moves in other growth assets like stocks and from a depreciation of the rupee, which has been fairly constant over the years. “This means that investors should continue to invest 5-10% of their portfolios in gold. You must have an investment horizon of at least 10 years.”

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