Gold outperforms stock market so far this century

Gold prices have outperformed the markets – S&P 500 – thus far in this century (i.e. since 2000), returning 86% more than the market if both asset classes were indexed at 100 levels starting December 31, 1999, suggests the latest World Gold Council’s ‘Gold Investor’ report for September 2017.

“The current equity bull market, now in its eighth year, is one of the longest in US history – it could very well become the longest. Even so, gold has outperformed the S&P 500 so far this century, returning 86% more than the market if we index both asset classes at 100 on 31 December 1999. Over the past 17 years, the S&P 500 has undergone two major contractions. Gold, meanwhile, has held its value well, highlighting its appeal as a portfolio diversifier,” the WGC report says.

Is there a compelling case for investing in gold then?

With the global equity markets trading at all-time highs at a time when the geopolitical situation, especially with North Korea threatened to derail stability, WGC for one, thinks so.

Seen as a safe haven asset, gold prices have been on an upward spiral since August-mid. According to reports, gold prices have surged nearly 7% from Rs 28,500 on the Multi Commodity Exchange (MCX) to Rs 30,500 till September-mid.

Gold also looks very cheap compared to markets that are highly overbought at the moment, reports suggest. North Korea fears notwithstanding, major valuation averages are regularly hitting fresh all-time highs. As such, the gold-to-S&P 500 ratio is near 10-year lows, meaning the yellow metal is extremely undervalued, WGC says.

It’s worth noting too, that the stock market rally (S&P 500) has been propelled disproportionately by only a handful of tech stocks, such as Apple, Amazon, Facebook and Alphabet. As of August 1, the S&P 500 was up 10.5% year-to-date, but if information technology stocks were removed, the index was up around 7.5%, a significant difference.

“That so few stocks have contributed so much makes the market particularly vulnerable, should those stocks see a major correction. It also underscores the need to diversify into safe haven assets, such as gold,” the WGC report says.

As a portfolio strategy, too, experts suggest investors should diversify their holdings into equities, real estate, insurance and gold.

“The perplexity and dilemma surrounding the timing on making an investment in a complex, dynamic environment clobbered by geo-political escalations but aided aptly by abundant liquidity is making decision making even more onerous. Albeit, if one is clear about one’s investment objectives, the periodicity of making an investment, have defined one’s goals / objectives over the next few years then creating a pool of assets should more or less ensure that the objective of deriving a sustainable Return of Investment (RoI) is achieved,” advises suggests Mayuresh Joshi, fund manager at Angel Broking.

“A small portion should get into investing in gold as it creates a hedge both against the anomalies created by a rising equity market and inflation,” he adds.