Can we beat inflation by investing in Gold? Can we beat inflation by investing in Gold? Let us try to find out by looking at past data from 1979 to 2023 with around 11,600 daily data points.
Our idea of investing for the long term is to beat the inflation. Whether it is equity, gold, real estate, or a mix of these assets. Hence, we always look for the asset which can help us to beat the inflation.
Among available asset classes, gold and real estate are the most popular among Indians. We have a firm belief that the price of these two assets will never give us negative or lower returns.
Whether investing in Gold beats inflation?
Let us try to find out the history of gold by looking at the past 44 years of data. I got this data from the World Gold Council. The values are in terms of rupee and gram. Now, we have 11,660 daily data points to analyze.
To understand the volatility, I am considering the 1-year, 3-year, 5-year, and 10-year rolling returns. This will actually give us clarity about the volatility.
As usual, let us start the journey of understanding to know what if someone invested Rs.1,00,000 in 1979.
Rs.1,00,000 invested in gold in 1979 is worth of Rs.89,24,859. If we consider the CAGR, then it is around 10%. But the journey is not so smooth and there are only few who are holding it for 44 years. Hence, rather than looking at point to point return, we have to depend on rolling returns.
# 1 Year Rolling Returns of Gold from 1979 to 2023
You notice the volatility range. The maximum return is 249%, the minimum return is -34%, and the average return is 12%. Almost 43% of the 1-year returns are less than 6% for 1 year holding period between 1979 to 2023.
# 3 Year Rolling Returns of Gold from 1979 to 2023
After holding for 3 years, the volatility is easily visible. The maximum return is 36%, the minimum return is -10%, and the average return is 10%. Almost 35% of the 3-year returns are less than 6% for the 3-year holding period between 1979 to 2023.
# 5 Year Rolling Returns of Gold from 1979 to 2023
In the case of 5-year rolling returns also the volatility is easily visible. The maximum return is 28%, the minimum return is -10%, and the average return is 10%. Almost 29.3% of the 5-year returns are less than 6% for the 5-year holding period between 1979 to 2023.
# 10 Year Rolling Returns of Gold from 1979 to 2023
You noticed that after holding for 10 years, the returns possibilities range from 21% as the highest, the minimum is 0% and the average is 10%. Almost 20.5% of the 10-year returns are less than 6% for the 10-year holding period between 1979 to 2023.
Conclusion – Based on 44 years data from 1979 to 2023, what we can conclude that if we consider the inflaiton as 6%, then even after holding for long term like 10 years, the chances of not beating the inflaiton is 20%. For medium to short term periods like 5 years, 3 years and 1 year, the probbility of not beating the inflation increases drastically.
It is a myth to assume that if we invest in gold, then we can easily beat the inflaiton as gold will always goes up. The above data again prove the volatility nature of the gold. If you still believe gold is worth for you to beat the inflation, then you can go ahead.