Gold has clearly outperformed the Nifty 50 over the last decade, and CA Abhishek Mehta, chartered financial analyst at Investza Capital, points to three big reasons why.
One key driver of gold’s stellar performance has been aggressive buying by central banks, he stated. China and Russia alone have added more than 1,400 tonnes to their reserves over the last ten years. One-fifth of the world’s gold reserves are now held by central banks.
“China today is second in GDP, foreign reserves, and market cap, but still ranks sixth in gold reserves,” says Mehta. He expects China and Russia to continue stockpiling gold to de-dollarise their reserves and strengthen their currencies.
The second reason is geopolitical uncertainty. From the US-China trade war to Russia-Ukraine and even India-Pakistan tensions, every flashpoint has sent investors flocking to gold.
Third, gold remains one of the best hedges against inflation. “We advise clients to allocate some part of their portfolio to gold,” said Mehta, adding that it remains a crucial asset in long-term asset allocation strategies.
Gold Versus Silver: Understanding The Risk
Before diving into how to invest, Mehta insists investors must first understand the risks. Gold has shown a standard deviation of 18.25% over the last decade, while silver has been more volatile at 23.75%.
This volatility impacts the efficiency ratio, or the return you get per unit of risk, stated Mehta. Nifty 50 tops the chart with an efficiency ratio of 1.04, followed by Nifty 500 at 0.92, gold at 0.76, and silver at 0.48.
Despite its lower efficiency, Mehta sees promise in silver. “Silver’s demand is now largely industrial — from EVs to solar panels and medical devices,” he notes, adding that over the next decade, silver could well outperform gold.
Digital Is Better Than Physical
When it comes to investing, Mehta recommends going digital. “A lot of people think buying gold means buying jewellery — but ETFs and fund of funds are far better options,” he says.
Physical gold incurs GST, making charges, and higher retail markups. On the other hand, gold ETFs (like GoldBees) and silver ETFs (like SilverBees) offer lower entry points and greater liquidity, points out Mehta. For silver, given its higher volatility, he recommends a staggered approach to investing.
Both ETFs and fund of funds track gold and silver, but the difference lies in taxation. ETFs are taxed at 12.5% after one year. Fund of funds attract the same tax after 24 months. “Go for ETFs if you’re looking for liquidity and better tax efficiency,” says Mehta.
Gold and silver also bring diversification benefits. “They have a negative correlation with the Nifty,” says Mehta. In bad market years, gold has historically gone up. For instance, in 2008, Nifty fell 35% while gold gained 26.8%. Allocate 10–15% of your portfolio to commodities like gold and silver, advises Mehta.
Watch The Whole Conversation Here
. Read more on Personal Finance by NDTV Profit.