Khota Paisa

Gold is After All Not That Shiny

Posted in General by khotapaisa on June 15, 2009

After giving unprecedented returns recently, Gold became the buzzword in the investment circles. Everyone wanted it to be part of his/her portfolio. Traditionally, Gold is considered to be a safe investment and hedge against inflation. Since I was planning to invest in gold, I thought why not see the historic returns in gold. So I downloaded historic gold price. When I was analysing the price variations to get a clear picture of the volatility in gold, I realised that unlike common perseption gold is a fairly volatile investment often returning ‘-ve’ returns even over 10 years.  The table below shows the returns (CAGR) you would have got if you had bought gold and held it for 10 years before selling.

goldThe table shows that there is ~25% chance that you may incur loss on your gold investment over 10 years (Note: Most of the ‘-ve’ returns were during 1987-1992 period). Infact the compounded retuns from gold over the past 100 years has been mere 3.9%. The same for the past 50 & 25 years has been 6.64% and 2.93% respectively.

Well, all that it means is that gold is not so safe (still safe enough i guess) and it certainly needs to be held for much longer period. BTW, I still plan to invest regularly in gold, albeit in small quantity. Afterall it’s Gold!

Note : This calculation is based on gold price in dollar terms. In rupee terms, Gold become much more appealing.

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  1. […] Good Is Investment In Gold? Posted in Investment by khotapaisa on August 12, 2009 In an earlier post I had analysed the performance of gold as in investment. The analysis was based on historical gold […]


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