Over the last two decades, the Indian stock market, represented by Nifty and gold, has shown different performance trends. The comparison highlights the contrasting nature of these assets over the specified period. The Nifty 50 index delivered a compound annual growth rate (CAGR) of 14 per cent in the last ten years and 14.9% in the last 20 years, while Gold has, on average, returned 11.2% in the last 20 years.

The Nifty index reflects India’s equity markets and has seen periods of robust growth driven by economic expansion, corporate performance, and structural reforms. However, the returns were subject to market fluctuations and economic cycles.

Gold’s stability as a haven

On the other hand, gold is renowned for its role as a safe-haven asset and demonstrated stability and resilience. During economic uncertainty, geopolitical tensions, and market downturns, gold often served as a store of value, attracting investors seeking risk mitigation. Gold’s performance was positively correlated with inflationary concerns. Investors turned to gold to preserve purchasing power during rising inflation, contributing to its appeal as a long-term wealth preservation asset.

Equities, gold & investor behaviour

Nifty’s returns reflected the cyclical nature of the stock market, influenced by economic indicators, corporate earnings, and global market dynamics. Periods of bullish trends were often followed by corrections or bearish phases. Nifty’s returns exhibited higher volatility, influenced by various factors, including economic data, policy changes, and global market sentiment.

Gold, comparatively less volatile, offered a steadier performance trajectory. Investors adopting a diversified portfolio strategy may have benefited from the non-correlation between Nifty and gold. The inclusion of gold could provide risk mitigation and stability, especially during periods of market turbulence.

The relationship between interest rates and precious metals influenced investor behaviour, with low or negative real interest rates increasing the attractiveness of non-interest-bearing assets like gold.

Socio-economic & technical factors

Rising global inflation heightened the appeal of precious metals like gold and silver as hedges against currency devaluation, contrasting with the vulnerability of traditional stock indices. Increased geopolitical uncertainties and conflicts fuelled demand for haven assets, with gold and silver benefiting from their status as stores of value during periods of instability.

Silver, in particular, saw a boost due to its essential role in producing solar panels, as increased global focus on renewable energy solutions drove up demand for this industrial precious metal. Chart patterns, trend analysis, and technical indicators played a role in attracting traders to precious metals, creating positive momentum that exceeded that of the broader stock market.

Regulator policies

Divergent monetary policies among central banks influence the relative performance of assets. Accommodative monetary policies favouring precious metals contributed to their outperformance compared to equities. Swings in the U.S. dollar value significantly impacted the relative performance of gold and silver, given their inverse relationship with the currency.

Disruptions & volatility

Ongoing disruptions in global supply chains, coupled with concerns about the availability of physical assets, bolstered the attractiveness of tangible investments like gold and silver. The volatile nature of cryptocurrencies led some investors to seek stability in traditional safe-haven assets, contributing to the strength of gold and silver markets.

Financial goals achievement

These factors created a favourable environment for gold and silver prices, allowing them to outshine Nifty and other stock indices in 2023. In summary, the comparison of Nifty’s 20-year returns with gold underscores the trade-offs between the dynamic potential of equities and the stability offered by precious metals. Investors often blend these assets strategically to optimize risk and returns in their portfolios, aligning with their financial goals and risk tolerance.

The author is National President at Commodity Participations Association of India (CPAI)