2026 outlook: Should you shift from gold to equities next year? What the equity–gold ratio signals for investors

The year 2025 belonged to precious metals. Gold and silver delivered returns rarely seen in decades, sharply outperforming equities and reshaping portfolio allocations. Silver surged about 138% during the year, while gold climbed nearly 75%, marking one of its strongest annual performances in over 40 years. By contrast, the Nifty 50 delivered single-digit returns, prompting many investors to question whether 2026 could mark a rotation back toward equities.

Market experts say the outsized gains in gold and silver were driven by an unusual alignment of global risks, like geopolitical tensions, aggressive central bank gold purchases, concerns over inflation and sovereign debt, and strong industrial demand for silver. While these tailwinds remain relevant, repeating such extraordinary returns may prove difficult. This has brought renewed focus on a long-standing valuation tool: the equity-to-gold ratio.

Reading the equity–gold cycle

Alok Jain, founder of Weekend Investing, explains that equities and gold move in long, alternating cycles of relative outperformance. “There are phases when equities clearly outperform gold and phases when gold dominates. The challenge is not pinpointing exact turning points, but recognising zones where probabilities begin to shift,” he says.

The equity–gold ratio, calculated by dividing the Sensex by gold prices in rupee terms, captures this relationship. Over the past four decades, the ratio has oscillated within a broad range, repeatedly moving from one extreme to the other. When the ratio is near the lower end of this range, equities have historically gone on to outperform gold. When it rises toward the upper end, gold has tended to take the lead. 

As of December 18, 2025, the Gold-to-Sensex ratio is at 1.4x, indicating gold is expensive relative to equities. Currently, the ratio is closer to levels that have, in the past, preceded phases of equity outperformance. Gold has already risen about 170% in rupee terms in less than two-and-a-half years -- an unusually sharp move. Equities, while also up strongly since the Covid-era lows, have grown at a steadier pace.

What the data shows

Long-term data reinforces this cyclical pattern. When the Sensex–gold ratio has been in lower bands of around 0.5 to 0.7, equities have delivered average annual returns of 16–31%, significantly outperforming gold. As the ratio moves higher, gold returns tend to moderate while equity returns remain relatively strong.

At the upper end of the ratio range, roughly between 1.1 and 1.3, the trend reverses. Gold has historically delivered average annual returns close to 20% in these phases, while equity returns have weakened sharply. This behaviour has repeated across multiple market cycles over the last four decades, making the ratio a useful framework for allocation decisions rather than a short-term timing tool.

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Sensex–Gold      GOLD CAGR (%)                 SENSEX CAGR (%)
Ratio Band       Avg     Min     Max           Avg     Min     Max
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0.5 – 0.6        11.7    -4.6    22.0          31.1    17.1    54.7
0.6 – 0.7         2.4    -6.8    10.4          15.8     3.6    26.0
0.7 – 0.8        -0.9    -0.9    -0.9           6.1     6.1     6.1
0.8 – 0.9         6.9    -1.4    16.4          12.3    -2.5    32.7
0.9 – 1.0        15.7     0.6    26.1          11.3    -2.5    34.1
1.0 – 1.1        14.9     5.7    27.1           8.6    -0.2    14.6
1.1 – 1.2        21.6     9.8    42.8           4.3   -15.2    14.2
1.2 – 1.3        19.8    17.8    21.6           6.7    -4.9    14.8

Source: Investing.com, NSE

What does it mean for 2026

While no indicator offers certainty, the current positioning of the ratio suggests that the probability of equity outperformance may be rising—particularly in India. This does not necessarily imply a sharp correction in gold prices. Instead, gold may enter a phase of consolidation or slower gains, while equities gradually regain leadership.

Global dynamics add nuance to the outlook. Gold could continue to perform relatively well against US equities amid macroeconomic uncertainty, even as Indian equities outperform gold in rupee terms. Such divergences across regions have occurred in previous cycles.

Rebalance, don’t rotate blindly

Experts caution against viewing 2026 as an all-or-nothing switch. Gold remains a critical hedge against geopolitical risk, currency weakness and financial instability. However, for investors whose portfolios have become heavily skewed toward gold after the 2025 rally, gradual rebalancing may be more prudent than chasing past performance.

The equity–gold ratio does not predict market moves, but it helps investors assess relative value across cycles. If historical patterns hold, equities may be nearing a phase where they start to look more attractive relative to gold—making discipline and diversification, rather than dramatic shifts, the key strategy heading into 2026.