I plan to invest Rs 1 lakh every year in Sovereign Gold Bonds over the next 15 years. Will it be able to beat inflation?
- Sudhakar K
To answer this question, look at the Nippon India ETF Gold BeES, which has the longest history among gold funds. If you had invested at the outset, you would have earned little more than 10 per cent, which is a very good return. But when you look at the SIP returns, you will realise that most of the gains have happened during the last four years, which means that gold has turned out to be a very erratic investment.
Not only that, when you look at the worst-performing periods of this fund itself, its worst fall has been 13 per cent over a week and 20 per cent in a year. That means gold prices can fall by 13 per cent in a week and by 20 per cent in a year.
The point is that most people have this sense that investing in gold is good. But it is just another asset that has become volatile. Gold is not supposed to beat inflation, as it has nothing in its character which is supposed to beat inflation. To beat inflation, it should be linked to the real economy. But gold sits in your locker, and its primary driver is demand and supply.
Gold is a fancied asset only when there is blood on the street, the market crashes and even the fixed-income investors who had bought bonds are worried that the companies may go bankrupt and they will not get their money back. And the other is that you can look at it for consumption purposes and feel happy about owning an asset.
But it's not good as an investment. If you are optimistic about the world's future, you should not be investing in gold.
This article was originally published on March 03, 2022.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
