All that glitters: Tracking the rise in gold prices

Over the past two consecutive decades, gold has returned ~12% CAGR returns. Considered a safety asset, the chart below shows some of the key events that have supported if not bolstered gold prices over the past decade.

Source: Trading View, July 26th price data from 2015 to 2024.

What about short-term gold returns?

The last three years have seen gold return a CAGR of ~15% (Jun 21-24), almost matching up to the NIFTY50. Since then, prices have cooled off a bit.

Source: Trading View

What are some of the key reasons for the recent hike?

• Ensuing geopolitical tensions (Russia-Ukraine, Israel-Palastine) have propelled prices upward.

• Besides this, driven by the motive to lower reliance on the dollar global central banks have been on a gold accumulating spree since 2022. Net purchases in 2022 were around 1,083 tons and 1,037 tons in 2023. Countries including China, India, Poland, Singapore, Libya, and the Czech Republic are just some who have been buying gold reserves. As of June 2024, the number stands closer to ~485 tons.

• Gold is typically perceived as a good safety hedge against inflation. Rising inflation in the past few years has also been one of the drivers

Considering investing in gold?

Source: Valueresearch, Moneycontrol; *Returns as of 26th July 2024

Conclusion

Gold has long been a favoured asset for risk-averse investors seeking portfolio diversification. As a prudent investment strategy, allocating a portion of one's portfolio to gold can serve as a hedge against potential losses.