Gold, silver have given best returns over 25 years

MUMBAI: In India, gold has emerged as the best performing asset class of this millennium. The yellow metal is closely followed by silver, of late the new darling of traders and investors, pushing equities to third place by a respectable distance. The scenario is not very different in the international markets too.

Consider this: In the domestic market since end-1999, the price of gold has risen from about Rs 4,400/10 grams to slightly above Rs 1.4 lakh today. This works out to a compounded annual growth rate (CAGR) of 14.3%. Silver has gone from Rs 8,100/kg in end-1999 to a little over Rs 2.5 lakh, as on Saturday, at a CAGR of 14.1%.Gold’s main demand from jewellery, store of valueIn comparison, NSE Nifty offered a CAGR return of 11.7%, closely followed by 11.5% in sensex, the two leading equity benchmarks in India. For perspective surrounding the outperformance of the two precious metals this millennium, sensex should have been at 1.6 lakh points mark today, nearly double its current level of about 85K, to match silver’s return. For Nifty to match the returns from the white metal, it should have been at about 48,000 points, a little less than double from its current level of 26K. Given the variety of factors that drive prices of precious metals, and some new demand-boosters being added in recent years, the outperformance may continue.According to Vikram Dhawan of Nippon India Mutual Fund, the yellow metal remains a strategic component of diversified portfolios, with Gold ETFs offering a regulated and efficient route to gain exposure. “While gold prices may experience short-term volatility, its role as a portfolio diversifier continues to be relevant within a disciplined asset-allocation approach,” Dhawan told TOI.

For gold, the main demand originates from the jewellery segment and its traditional character as a store of value. Some estimates say the total household gold holding in India is nearly equal or slightly more than the country’s GDP. As a country, India is among top two gold buyers in the world. As far as silver is concerned, for years, the main demand in India was for coins, bars, utensils and less for jewellery. However, given the recent spurt in prices, that scenario is changing, local jewellers said. Lately, given sharp rise in prices of the two precious metals, people are mixing the two for making jewellery.Combined with these, a series of interest rate cuts in the US boosted demand. Lower US rates make dollars cheaper against other major currencies and since precious metals are priced in dollars, they become relatively cheaper in other currencies, boosting demand. “Turbulent geopolitical conditions and policy uncertainty were two other factors supporting silver prices through their boost to safe haven investment,” said a recent report by The Silver Institute. This factor, however, is more relevant for gold than silver, market players said.The demand from ETFs for the two precious metals is also adding to the price rise. For silver, additional and growing demand from the three thriving industries — solar, electric vehicle and semiconductors — is driving prices northward, traders and analysts said. While the demand for the white metal is growing, supply is not catching up fast enough, recent reports suggested.