Gold prices have been steadily rising and reaching unprecedented levels in recent days. In Chennai, for instance, the price of 24-karat gold soared to ₹7,610 per gram last week. While investors with holdings in gold, whether physical or through various investment channels like gold bonds or exchange-traded instruments, are jubilant, others are pondering whether they’ve missed an opportunity.
Gold Price Predictions
According to projections by the World Bank, the average gold price in 2024 is expected to be around $1,950 per ounce (approximately ₹5,736.71 per gram). The IMF, on the other hand, forecasts an average gold price of $1,775 per ounce (approximately ₹5,231 per gram) for the same year. However, financial giants like Goldman Sachs and JPMorgan Chase & Co have made more bullish estimates, predicting gold prices to reach $2,133 and $2,175 per ounce (approximately ₹6,286 and ₹6,410 per gram) respectively for the current year. As of the time of writing, the price of 24-carat gold stands at $2,337 per ounce (approximately ₹6,887.4 per gram).
Considering the projections by the IMF and World Bank, it’s plausible that gold prices may see a decline in the coming months, given that the current prices far exceed the average predicted values.
Should You Increase Your Gold Investments?
Investment decisions should always align with one’s risk appetite, return expectations, and financial goals. It’s crucial to adhere to an asset allocation plan even when one asset appears to outperform others. However, investors often get swayed by the performance of specific assets, such as gold when its prices surge, or equities when the stock market is bullish.
Surprisingly, both the Indian equity market and gold prices are currently soaring to new heights simultaneously.
Comparing Returns: Gold vs. Equities
Looking at the historical returns of gold and Nifty (Indian stock market index) over the years, we observe fluctuations in performance. While gold outperformed Nifty for 11 years, Nifty performed better for 12 years. These comparisons highlight the variability of returns between the two assets, with Nifty registering a high return of 75.76% in 2009 and a low return of -51.79% in 2008, whereas gold’s highest return was 28.57% in 2007 and its lowest was -5.94% in 2015.
Understanding Compounded Annual Growth Rate (CAGR)
The compounded annual growth rate (CAGR) provides a reliable measure of an investment’s average annual growth rate over a specified period, offering insights into long-term returns.
Geopolitical Trends and Gold
Gold is often considered a safe haven during economic uncertainty or geopolitical turmoil, serving as a hedge against inflation. The current surge in gold prices is attributed to various factors, including heavy demand in China, geopolitical tensions, ongoing conflicts, and economic uncertainties regarding US Federal Reserve rate adjustments.
Unproductive Nature of Gold
Despite its appeal as a safe investment, gold is considered unproductive since it does not generate income. Its value relies on the belief that someone else will pay more for it in the future. Unlike investments in shares or debt instruments, which contribute to economic growth, gold remains stagnant in value over time.
Key Takeaways
Investors should adhere to their asset allocation plans and maintain their planned investments in gold. It’s essential to remain cognizant of the possibility of price corrections, aligning with projections by the IMF and World Bank.
