For gold to rise, this needs to happen
You buy stocks for good times, and gold for bad times. No one could have said it better. And perhaps no one other than us Indians have planned better for bad times.
We have been hoarding gold for generations. And to ensure we do not go astray it has been woven into our culture. So, no matter who you are…you are always hoarding gold.
For your wife. You want her to wear solid stuff. Social status and all.
For your daughter. You want to give her a fair share of your wealth in metal that has stood the test of times. Only the best will do.
For bad times. You can easily convert gold to cash and meet short term needs. Our desire to hoard gold at its very core was perhaps driven by a need for wealth preservation.
What may have come as a surprise to us Indians is that Gold as an asset class has actually delivered a solid return over a long period of time. See this chart prepared by FundsIndia (yellow highlights are mine). While most are fascinated by the potential of returns that stocks can generate, an asset like Gold, without much fanfare, has comparatively done phenomenally well.
Over a five-year period, basis the FundsIndia data, Gold did as well as the Nifty 50 TRI. Over 15 years too it matched up to the far more riskier stocks. Also, gold outperformed debt and real estate over all time periods.
If one goes purely by this chart, the real winner is gold. Yet, I believe, gold’s place in the asset allocation of an individual is limited. Perhaps to the extent of 5% to 10%, generally speaking.
(At times it may justify having even more money in Gold. All depends on your individual circumstances.) Why so? In spite of these wonderful numbers. For one, these numbers are perhaps a function of luck to some extent.
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