In the inflationary environment of 2022, should we invest in gold? What has been the return if invested in gold 5, 10 or 20 years ago?
In the inflationary environment, investors are overly excited about investing in gold. So let me answer the common question among investors: Should I invest in gold in 2022?
TLDR; No, you should not be investing in gold and if you want to know why let me explain.
Gold is a Hedge
Gold is never an excellent investment. However, it is always a hedge, and it will always remain as a hedge against inflation.
So let me explain what I mean by a hedge.
So the equity market may underperform in the inflationary environment. On the other hand, gold is expected to give returns slightly better than inflation.
However, inflation is expected to be high, but that high number is still close to 7%.
So returns from gold, if it beats inflation, should be above 7%.
In the short term, equity may even give negative returns, so return from gold as an investment may look attractive.
Still, gold is not an excellent investment and let me share why.
CAGR Returns from Gold
In the short term (3months, 6months or 1year), gold may seem to outperform equity.
But for the long-term, gold returns are too low compared to equity.
Let’s see the returns from gold for 3years, 5years, 10years and 20 years and compare the same with Nifty.
| Year | Gold Price | Nifty |
|---|---|---|
| 2002 | 4990 | 1,094 |
| 2012 | 31050 | 5,905 |
| 2017 | 29667 | 10,530 |
| 2019 | 35220 | 12,168.45 |
| 2022 | ~52000 | ~18000 |
Chart Data from Wikipedia and BankBazaar
Now let’s do a CAGR return calculation for each.
| CAGR Return in Past | Gold | Nifty |
|---|---|---|
| 20 Years (2002 – 2022) | 12.43% | 15.08% |
| 10 Years (2012 – 2022) | 5.29% | 11.79% |
| 5 Years (2017 – 2022) | 11.88% | 11.32% |
| 3 Years (2019 – 2022) | 13.87% | 13.94% |
The calculation is done in ET Money CAGR Return Calculator.
Clearly, in the past 3 to 5 years timeframe, equity and gold returns have been at par. However, in the long run, equity beats the return from gold considerably.
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What Does Warren Buffett Say About Gold?
We should listen and follow one of the best investors we have ever seen.
Buffett considers gold an “unproductive” asset in his 2011 letter to shareholders.
He says equity as an investment class is doing a business and is an active and productive form of investment.
Gold, on the other hand, is unproductive, and its value increases because someone is willing to pay more price for it.
Warren Buffett has even warned against dumping shares and stocks, hoarding cash, or buying gold or bitcoin even when a war breaks out.
We should listen to him because he has undoubtedly seen war bigger than Russia-Ukraine. He believes investing in businesses is the best way to build wealth over time and so one should not invest in gold in 2022
Final Thoughts
Gold is an excellent way to diversify your investment and stabilise your overall portfolio. However, it is never a perfect investment opportunity.
So if you are investing in gold as a hedge or for personal use, go for it. Not otherwise.
On a lighter note, if you had purchased shares of Titan Industries in 2012 instead of buying gold from them, your money would have become 10x or 26% CAGR instead of 6%. From ₹200 per share in 2012 to ₹2000 per share even after the correction in 2022.
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