The Golden Myths
Posted On Thursday, Nov 20, 2008
2008 has turned out to be a year of "synchronized fall in all asset prices" across the globe. Gold as an asset class has also fallen by 11% in US dollar terms.
The fact that gold prices have come down has led to some misconceptions on the ability of gold to deliver returns. Some of the misconceptions on Gold are :
- Gold has not performed well in the current year in comparison to other asset classes.
- Unlike other asset classes like Stocks and Bonds, investment in gold does not provide sufficient returns as no income accrues in the form of dividend or interest.
- Gold is more volatile vis-à-vis other asset classes and therefore more risky.
To understand these better we analysed data over the past 5 years and ascertained the returns offered by Gold and other asset classes both in the Indian and Global context. In addition we also took into account the risk (volatility) associated in getting these returns, leading us to calculate the risk adjusted returns viz. returns per unit of risk. The table below gives a good comparison on the performance of various asset classes :
| Asset | Asset Class | YTD | YOY | CAGR 3 Years | CAGR 5 Years | Annualised Volatility (Risk) | Returns Per unit of Risk |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | |
| Gold (USD) | Commodities | -11% | -6% | 17% | 13% | 20.73% | 0.64 |
| Gold (INR) | Commodities | 11% | 17% | 19% | 15% | 20.39% | 0.74 |
| Crude Oil (USD) | Commodities | -41% | -39% | 0% | 12% | 36.31%% | 0.33 |
| Rogers Commodity Index | Commodities | -35% | -33% | -3% | 5% | 20.30% | 0.25 |
| CRB Index | Commodities | -31% | -29% | -7% | -1% | 17.92% | -0.04 |
| Goldman Sachs Commodity Index | Commodities | -34% | -32% | -1% | 10% | 25.89% | 0.38 |
| Sensex | Equity | -54% | -53% | 3% | 14% | 28.37% | 0.49 |
| Dow Jones Industrial Average | Equity | -36% | -35% | -7% | -3% | 18.37% | -0.15 |
| I-Sec Sovereign Bond Index` | Bonds | 9% | 11% | 8% | 5% | 8.66% | 0.63 |
| MSCI World Index | Equity | -45% | -45% | -10% | -2% | 16.11% | -0.12 |
| MSCI Emerging Market Index | Equity | -57% | -58% | -6% | 5% | 22.86% | 0.21 |
| MSCI India Index | Equity | -58% | -55% | 2% | 12% | 28.88% | 0.41 |
*Data as on 14th November 2008.
YTD data from January 1, 2008.
Annualised volatility is measured using daily standard deviation over the last 5 years
Returns Per unit of risk = (e) / (f) [i.e. Risk Adjusted Returns]
And the conclusion does not surprise us.
Gold has clearly outperformed other asset classes in generating better returns with lower risk. Gold has proved once again that it’s the best safe haven in times of turmoil. It is clear from the above table that investors across asset classes having a portfolio allocation to gold, would have limited their overall portfolio losses.
Investors show vote of Confidence in Gold!!!
Gold Exchange Traded Funds (ETF), a preferred vehicle usually used by global investors to gain exposure to the gold asset class have seen their gold holdings remain robust. Physical Gold held under Gold ETFs globally at the end of October 2008 was 1,020 tonnes just 24 tonnes lower than its peak seen this year.
Is this signaling that the smart and long term money continues to have faith in gold as a safe haven in these turbulent times ?
View All
Related Posts
-
Equity Outlook - October 2026
Posted On Thursday, Oct 01, 2026
Indian equities declined in the month of September, as the renewed escalation in West Asia pushed crude back above USD 100 and offset the positive sentiment built over the previous two months.
Read More -
Debt Outlook - October 2026
Posted On Thursday, Oct 01, 2026
The debt market enters October with a more challenging backdrop than it did a few months ago. Global bond yields have moved higher
Read More -
Liquidity: A Frequently Used Term in Financial News, Explained
Posted On Monday, Sep 28, 2026
For somebody on the outside, these phrases can sound as though India periodically runs short of money and the Reserve Bank of India has to refill it.
Read More
