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Indians Obsessed with Gold Despite Lower Long Term Returns

September 8, 2010

Indian’s Obsession towards Gold has increased in the past 5 years despite rising prices. Data suggests that demand for Gold has been secular and is not linked to either inflation or alternative investment opportunities.

IN the last 4 years, Gold has performed largely in line with Sensex and has delivered a better risk-adjusted-return, suggesting that the relationship could endure for some time to come.

Over the Long Term, Gold has delivered exactly half the annualized Returns compared to BSE Sensex. BSE SENSEX has delivered 20.6% Annualized returns while Gold has delivered 10.3%.

However, in the past 5 years, Annualized Returns of Investment in Gold has converged with that of Equities at 22%. Can this HoneyMoon of getting Risk Free Returns by investing in Gold sustain ? We are Long Term Investors and Advise to put more eggs into Equity Basket than Gold.

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