Introduction

In this blog, various facets of investing in gold in 2023 will be probed. The main focus will be the comparison between returns from gold and stock investments in India. Recent trends that might influence investors' decisions are also explored in-depth.

Key Takeaways

1. Over the long term, stocks and bonds tend to outperform gold.
2. There are certain periods when gold performs exceptionally better due to various global circumstances.
3. Gold prices tend to rise during periods of high inflation and geopolitical unrest.

Gold Returns vs Equity Returns

When evaluating the returns on gold investments in the last four years, gold has delivered 100% returns. In comparison, equities or the stock market have realized nearly 0% returns for the last one-and-a-half years. This comparison naturally begs the question of why one should even invest in the equity market when gold seems to deliver much higher returns.

However, if you take a step back and assess the returns over a decade, the picture changes. Gold returns in the last decade amount to less than 10%. Therefore, it's crucial to consider the horizon of returns and not be swayed by short periods of exceptionally high returns.

Evaluating Gold Investing

Gold prices tend to go up due to three principal reasons:

1. Increased World Risk: During uncertain times, investors favours safer assets like gold.
2. Inflation: If there is a surge in the world's money supply, prices of fixed supply assets like gold tend to rise.
3. Increased Sovereign Demand: Some countries may decide to stockpile gold, leading to an increase in demand and consequently, prices.

Currently, factors like world risk and inflation seem to be on the decline, which could potentially lead to a dip in gold prices.

Gold vs Equity

Investing in physical gold or bonds like the Sovereign Gold Bond (SGB) issued by the government has its own advantages and disadvantages. The returns on these investments highly depend on the underlying return of the gold as a commodity. So, irrespective of the form in which you own gold, if the prices do not go up, you will not make much money on your investment.

On the other hand, investing in equity has been a bigger wealth generator compared to investing in gold in the long term. Companies' growth is closely tied to the country's GDP, and as India's economy grows, the equity market, as represented by Nifty 50, will also grow.

The current market cycle also indicates that gold is overvalued while the stock market is undervalued. So, in 2023, investing in equity could possibly provide higher returns.

Conclusion

It's essential to understand the volatility of markets and consider investing based on your financial goals, risk tolerance, and time horizon. Physical assets like gold and land could serve as a safety net during uncertain times, while paper assets like equities usually promise higher returns in the long term.

Finally, irrespective of where you choose to put your money, be it gold, equities, bonds, or any other asset, it's crucial to understand the financial dynamics thoroughly, evaluate the risks associated with every decision and take a well-informed step.