Summary of this article
Gold rallies sharply but often stalls for years.
Long-term returns are more consistent in stocks than in gold.
Use gold to balance risk, not drive growth.
Gold has a way of grabbing attention every time it rallies, and this year has been no different. Reuters reported that global prices reached a seven-week high on Friday, driven by a softer dollar, expectations of rate cuts, and yet another round of geopolitical tensions. Back home, gold stole the spotlight during the festive season as well, hitting Rs 1,35,024 per 10 grams on October 17, largely over the US tariff impact.
With headlines like these, it’s tempting for investors to increase their gold exposure. But as tempting as the recent run-up looks, historical data suggests that you shouldn’t let gold take over your portfolio.
Gold is a Hedge, not a Wealth Engine! Why?
Over the long haul, gold has comfortably beaten inflation. Over a 10 or 15-year time period, gold has delivered 2 to 4 per cent real returns, according to data by FundsIndia. That makes it a solid store of value. But gold’s long-term record comes with a warning! Its returns can be uneven and unpredictable.
Gold performs in cycles… powerful rallies followed by long, uneventful stretches. FundsIndia has done a detailed study on the price movement of gold over the last decade. Look at the chart below:
Consider the last decade. After peaking in 2012, gold spent nearly seven years going nowhere. Investors who bought at the top saw their returns stagnate until 2019. The 1980s tell the same story. Gold stayed flat for almost a decade. And between 1996 and 2002, it took roughly seven years to touch its earlier high. These are not small blips; they’re long, patience-testing phases.
Over longer periods, equities tend to perform more reliably than gold
When you compare gold with equities, especially over longer periods, the contrast becomes clearer. FundsIndia’s data shows that the Nifty 50 TRI has a far lower chance of delivering negative returns over extended horizons than gold. Equities are tied to earnings, growth and productivity, forces that tend to compound with time.
Over a three-year window, gold has slipped into negative territory 14 per cent of the time, compared with just 6 per cent for the Nifty 50, according to FundsIndia. Stretch the horizon to five years and the gap widens even more, gold delivered negative returns 11 per cent of the time, while the Nifty 50 was almost never in the red, at barely 0.1 per cent. The data covers the Nifty 50 TRI since its June 1999 inception and gold since January 1980.
In fact, longer the time frame, equities have higher odds of better returns vs gold. FundsIndia’s research shows that over seven-year periods, gold managed to deliver returns above 7 per cent in about 67 per cent of the instances. Equities, on the other hand, did it almost every time, an impressive 98 per cent. The difference stays just as stark when you look at higher return bands. Gold beat the 10 per cent mark in 46 per cent of seven-year periods, while equities crossed that bar in 84 per cent of them.
So, despite gold’s recent stellar performance, history reminds us that gold is a cyclical asset. “Periods of rapid gains were often followed by long, flat stretches," says Ashika N, Manager, Mutual Fund Research, FundsIndia.
But this doesn’t mean gold has no place in your portfolio. It absolutely does, but as a cushion, not the core, believe experts. The recent strong momentum, says Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India, underscores gold’s growing relevance as both a strategic portfolio diversifier and a hedge against macro uncertainty. Domestically, investors increasingly viewed gold as an effective counterbalance to equity exposure, especially amid mixed global growth signals and currency fluctuations.
To wrap up, the latest rally may make gold look like a safe bet for quick gains, but it isn’t. Gold protects; it doesn’t compound. Overloading your portfolio only increases the risk of getting stuck in one of its long, flat phases while equities quietly build wealth in the background.
The sensible approach is to use gold as a diversifier, not the main act. Let equities drive long-term growth, and let gold do what it does best: steady your portfolio when things get turbulent.
