Gold rate: Solid returns ahead? What price data since 1920s hints at

Gold prices are witnessing a significant rise as global market anxieties increase, driven by fears surrounding trade war escalations, a slowdown in US economic growth, and hedging related to the Chinese yuan. These developments have spurred a demand for gold as a safe-haven asset, pushing brokerages like MOFSL to predict future prices reaching as high as Rs 1.06 lakh per 10 grams. 

That said, gold has a dual nature: It is a reliable store of value but also an investment prone to volatility and extended drawdowns. 

Gold investors in early 1980s, inspired by the stellar returns of the 1970s (up 1359 per cent return), had to face two decades of negative returns, data compiled by Capitalmind showed. 

"Whereas, in early 2000, after dismissing gold during the poor-performing 1980s and 1990s, investors would have missed its massive rally in the 2000s (up 293 per cent). This unpredictability underscores why systematically rebalancing portfolios is critical," Anoop Vijaykumar, Head of Research at Capitalmind Financial Services said.

He highlighted that despite its volatility in dollar terms, gold has been a relatively stable investment for Indian investors, largely due to the depreciation of the rupee against the dollar. 

Since 1973, when it took Rs 8 to purchase one dollar, the value has shifted dramatically. By 2025, the same dollar is expected to cost more than tenfold, reflecting significant currency devaluation over the decades. 

The price divergence 
Historically, the returns on gold in both rupee and dollar terms were relatively similar up until 1990. This was primarily due to India's capital controls and protectionist policies, which maintained a consistent exchange rate. However, the economic reforms post-1991, including trade liberalisation and currency decontrol, established a more market-driven exchange rate. This shift altered the dynamics of gold investments, particularly in how returns are perceived in different currencies.

From 1990 to 2002, the dollar value of gold experienced negative movements, contrasting with the positive returns seen in rupee terms.  

"On a five-year rolling return basis, the dollar return on gold frequently slipped into negative territory, especially between 1990 and 2002. Whereas the five-year rupee return mostly stayed positive and has remained ahead of the USD return for the majority of the period," Capitalmind said.

Gold return since 1920s
Data showed the annualised return for gold since 1920 has been a mere 4.95 per cent. In absolute terms, gold jumped 15,845 per cent to $3297 per ounce now from $20.68 level in 1920.

"While it won’t generate cash flows or compound like equities over decades, its low correlation with other assets makes it invaluable for diversification. The best way to include gold in your portfolio is through systematic rebalancing — not as a reactionary move driven by FOMO but as part of a long-term strategy designed to weather market cycles,” Vijaykumar said.