Should gold form a part of your portfolio?
Gold is the most popular asset after real estate which has an emotional value attached to it. People treat gold as an auspicious asset and hence are very emotional about it. People usually don’t buy gold as an investment but they do consider gold as one of the safest investments.
| Year | Price | Year | Price | Year | Price | Year | Price |
| 1964 | 63.25 | 1978 | 685.00 | 1992 | 4,334.00 | 2006 | 8,400.00 |
| 1965 | 71.75 | 1979 | 937.00 | 1993 | 4,140.00 | 2007 | 10,800.00 |
| 1966 | 83.75 | 1980 | 1,330.00 | 1994 | 4,598.00 | 2008 | 12,500.00 |
| 1967 | 102.50 | 1981 | 1,800.00 | 1995 | 4,680.00 | 2009 | 14,500.00 |
| 1968 | 162.00 | 1982 | 1,645.00 | 1996 | 5,160.00 | 2010 | 18,500.00 |
| 1969 | 176.00 | 1983 | 1,800.00 | 1997 | 4,725.00 | 2011 | 26,400.00 |
| 1970 | 184.00 | 1984 | 1,970.00 | 1998 | 4,045.00 | 2012 | 31,050.00 |
| 1971 | 193.00 | 1985 | 2,130.00 | 1999 | 4,234.00 | 2013 | 29,600.00 |
| 1972 | 202.00 | 1986 | 2,140.00 | 2000 | 4,400.00 | 2014 | 28,006.50 |
| 1973 | 278.50 | 1987 | 2,570.00 | 2001 | 4,300.00 | 2015 | 26,343.50 |
| 1974 | 506.00 | 1988 | 3,130.00 | 2002 | 4,990.00 | 2016 | 28,623.50 |
| 1975 | 540.00 | 1989 | 3,140.00 | 2003 | 5,600.00 | 2017 | 29,667.50 |
| 1976 | 432.00 | 1990 | 3,200.00 | 2004 | 5,850.00 | 2018 | 31,438.00 |
| 1977 | 486.00 | 1991 | 3,466.00 | 2005 | 7,000.00 | | |
After looking at the above graph, gold seems to be doing pretty well. However, if we go through the table then we may find that since the year 2011 to 2018 it has been range bound and have not given any better returns. For the same period, it gave CAGR (Compounded Annual Growth Rate) of a mere 2.21 per cent. On the other hand, Sensex gave CAGR of 11.18 per cent. Now if we look at the period from 1980 to 2018, Sensex gave CAGR of 15.13 per cent whereas, gold gave CAGR of 8.45 per cent. If we look at the 10-Year Government Bond Yield then for the period from 1998 to 2018 they gave CAGR of negative 2.05 per cent (this indicates a rise in prices of existing bond issues and reduction in coupon rates of new issues) and for the same period Sensex gave CAGR of 12.47 per cent and gold gave CAGR of 10.26 per cent.
Looking at the above analysis, we can say that having gold in your portfolio has its own benefits. From the 20 observations for gold, Sensex and 10-year government bond yields, gold gave negative returns 4 times and positive returns 16 times. If we look at the representative of equity i.e. Sensex then it gave negative returns 5 times and positive returns 15 times and in case of 10-year government yield negative returns 9 times and positive returns 11 times. That said, in the past 8 years, gold has been a laggard with respect to growth. But gold is something which helps you to further diversify your portfolio and reduce the probable overall portfolio risk. Having 5 per cent to 10 per cent gold in you overall portfolio would be a better from a hedging perspective.