Gold or Nifty, which of the two offers a better investment opportunity? Should gold be part of your long-term investment portfolio or should it be only stocks? These are some of the most frequently debated topics among investor community. If we take a look at the performance of gold versus equity investment over the last few years, gold had been blazing the trail alone, leaving equities way behind from 2008 to 2013. But since 2014, things have taken a sharp turn and equity returns are beating gold returns by huge margin. So what was fueling gold out performance prior to 2013? As gold is an inflation hedge, it's value appreciates in high inflation scenario and economic downturn. If inflation of any country increases, investors buy gold to balance their portfolio and gold price moves up. So, during inflation i.e. from 2008 till 2013 the gold prices were rising and the stock prices were falling. As economic scenario started to improve post 2013, the trend reversed. The same is evident in the Gold vs Nifty chart below. There was a huge divergence between gold prices and nifty in 2012-2013 wherein gold was is strong uptrend while nifty was either flat or in downtrend (An ideal time to sell gold and buy stocks). We witnessed the same divergence in nifty and gold prices in 2015 (gold prices continuously going down and nifty moving up). As smart investors, we should brace ourselves for slowly moving out from overpriced equity and entering into under priced gold and vice versa when ever such divergence occures. While making an investment view in Gold, one should also cross verify Nifty PE. Nifty PE above 25 is highly unsustainable and is a screaming sell for equity asset class (Please check Nifty PE here). Do not forget the basic mantra of investing - Buy low and sell high. You can track the daily comparison of Nifty and Gold prices on this page. The data on this page can be cross verified from Nse India and MCX websites
Gold vs Nifty Historical Return Analysis
It's interesting to look at the historical returns of gold and nifty. The chart below shows the kind of returns gold and nifty have been generating since 2006 till date. There are only 3 occasions (2008, 2010 and 2011) when gold has beaten nifty returns on a yearly basis. The jury is still out in 2016. Looking at this trend, gold doesn't seem to be a great investment avenue for investors. As discussed above, gold is a great investment only in times of economic distress. Keeping this in mind, investors should avoid making an investment in gold and prioritize investment in equities when the economy is in an uptrend as stocks are going to perform far better in such a scenario.