Investments in Gold - Trend of Performance and the Forecast!!

Middle class people struggle hard in order to keep a track with the outside competition, Say it, in education, medical or corporate world. Majority of people move outside their hometown and comfort zone to earn more money. However, the liabilities such as house rent, increased transport costs and escalated cost of living do not really help with their effective increase in salary. The only way to curb the cost of extended liabilities is to invest in mutual funds or a fixed deposit or in stocks and multiply money. Thinking of all this, the one asset that also struck my mind is GOLD. Gold is an investment asset and it’s a recent trend that there are people from India who has been investing in this asset, somewhat more than in mutual funds. In India as of November 2024, 8% of the Indians have invested in mutual funds. However, the trend of investing in gold has increased over the last few years. Currently, gold (65%) is the highest investment option, followed by fixed deposits (44%), and mutual funds (37%) in Indian metro cities. But can we infer from this trend if gold is one of the safest investment tools and fastest growing asset in India?

There are still some speculations in terms of the volatility in gold prices. I have run a small exercise of looking into the trend of average gold prices (in INR per 10 grams) since the year 2000 and got tabulated it as below.

The above table clearly shows that overall gold prices has increased with a CAGR of 13.31% if considered the year 2000 as the base year. In the last decade, gold price has increased at an average annual rate of more than 12%. But the speculation may come up during the span of 2012 to 2016 and between 2020 and 2022. During 2012, economic Boom in China led to huge demand in gold, investors started to liquidate gold with a perspective that the economic breakdown may put a fluctuation in the asset price. Demonetization followed soon during the last quarter of CY 2016 and people then started to buy gold and preserve their money to hedge the financial risks and we see a slow but steady increase in the gold rates till 2019. Post pandemic (Covid – 19), the gold prices has increased at an exponential rate owing to the investors using it as a hedge to curb risk against global economic disorder and keeping in mind the volatility on the exchange rates. And as we can observe that in the last 4 years gold prices have increased at a staggering rate of ~17%. Hence, making it one of the most popular and handy investment tools. However, the question lies if this upward trend of gold prices is going to sustain in the coming years.

Historically, gold maintained its value over time, unlike paper currency and other assets.?It can help investors preserve purchasing power and wealth. It has also maintained a negative correlation to the US dollar. It is a highly liquid asset and can be a very good source of long term returns as well. Looking into the current inflation rate and the growth in GDP, interest rates are going to get subdued which will overall increase the price of gold and hence can be a good asset to look into.

Understanding the asset, we can have a pessimistic, realistic and probabilistic forecasts for the price trend of gold till 2030.

The trend and the forecast show that gold is likely to be priced between INR 1.38 lakh to INR 1.80 lakh per 10 grams, giving a 5% confidence level. So, having a chance of earning a 2x – 2.5x return over the next 5 – 6 years looks attractive? The decision bestows upon all of you, if you will give chance to gold that can really glitter your life!!