Gold proving an excellent hedge against inflation and war, as always
Emerging Markets returns shows India is the only EM where returns from equities have exceeded the returns from gold between January 2000 and September 2023. While this neglects dividends, it is nevertheless an eye-opener. Even in India, gold has returned a handsome 10.9% compounded through this long period, while equities (ex-dividend) have returned 11.6% compounded.
The return from gold comfortably beat the return from debt everywhere through the last 23 years. This is not a surprise. Gold is merely living up to its reputation as a defensive haven during times of trouble.
Consider the following events (in no particular order of importance) that have occurred during the past 23 years. The 9/11 attack was followed by wars in Afghanistan and Iraq, the Ukraine War, and the Arab Spring. There was covid-19.
There have been sanctions on Iran and Russia, and China-US trade wars. The global financial crisis occurred after the collapse of the US subprime mortgage market. Then there was Brexit, and China’s Evergrande real estate crisis.
Indians suffered through demonetisation. The continuous turmoil of the last 23 years has led to persistent fears of disruptions in global supply chains. The prices of fossil fuels, industrial metals, and other commodities have been very volatile as a result.
The combination of covid and the Ukraine war has also contributed to pharmaceutical drug shortages, semi-conductor shortages, and lately, food shortages. This has contributed to high inflation. Plus there’s the looming threat of climate change and the multiple unusual weather events connected to that.
Throughout all this, investors have continued to stand by gold. The precious metal has beaten inflation and retained value. Asset allocation
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