Sipping Gold vs Sipping Nifty

This post is based on a request from a reader of this blog. While he wondered how the returns of L&T would have compared against Gold and Crude if one invested a equal amount of money from 2000 till end of 2014, I have instead chosen to compare Gold vs Nifty. Since Crude is a pure commodity which cannot be taken on delivery (by most ordinary investors), I have ignored the same.

While its easy to get data for Nifty, getting data of Gold (especially Monthly data is tough). Hence I have used whatever best represents the same. For the years from 2000 to 2004, I used RBI Gold prices (Yearly) and then incremented the price to make up for the absence of data. From 2005 to 2006, I used monthly closing prices of MCX-Gold and for the rest of the period, I have used Gold Bees.

For Nifty, I used Spot Nifty for the period 2000 to 2001 and from 2002 on-wards used data from Nifty Bees. I have not included Dividends nor added any other transaction costs.

The idea was to invest a sum of 5000.00 per month. Since the entire sum cannot be invested every month (unless one bought in fractions as well), the sum that was available after investment was added to the pool which was available for the next month.

The total period of analysis was hence 14 years (Jan 2000 to Dec 2014). Total Investment came to 9,00,000.00
(Nine Lakhs only).

The closing value at end of 2014 for Gold came to 25,38,484.87 while the same for Nifty came to 31,62,625.68. While 6,00,000 may not seem to be a big difference, do note that this is almost 66% of the investment. When we calculate the XIRR returns, the same is 15.13% for Nifty vs 11.86% for Gold.

As you would know, the higher the compounding, the difference in final returns will vary over time. On the other hand, do note that at end of 2014, markets were at the highest point ever while Gold was down 17.9% below its all time high (touched in November 2012). Add to this is the fact that since I have not included dividends that would have accrued over time and if the same was invested, the returns from Nifty would edge even higher. Gold on the other hand has no dividends and has a small holding cost as well.

To conclude, here is a quote by Warren Buffett

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffett

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About Prashanth

Have been a full time participant in the stock markets since 1996. Run a Yahoo Group where focus is exclusively on discussions of the Indian Markets using Technical Analysis as the tool (groups.yahoo.com/group/technical-investor)
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7 Responses to Sipping Gold vs Sipping Nifty

  1. Prashanth says:

    Kamlesh on Twitter asked me what the XIRR returns would have been as on 1st Dec 2012 (at the peak of Gold price). The answer comes to 18.3%. At the same point of time, Nifty gave a XIRR return of 14.29%.

    Since we are looking at the data with Nifty at the all time high, it does screw things a lot. Food for thought, eh?

  2. ltinvestment says:

    Thank You Prashant for your Time and Efforts. So i can conclude Gold is also good investment to beat the inflation. Because Gold is always in our minds as safe heaven then rela estate, shares…etc. Somebody is yelling that Gold will give sub inflation returns.

    • Prashanth says:

      Actually the results surprised me as well. Especially the fact that at one (12 years after initiation) point Gold had given much higher returns than Nifty

  3. Shyam says:

    Forgot the most important one- TAXES. Shave off 30% returns of the gold fund 🙂

    • Prashanth says:

      From Deepak’s Blog

      For gold, you have to hold for three years before you get “long term” gains, which are taxed at 20%.

      But if you were to buy in ETF form (GoldBees), Capital Gains will not be applicable if you sell after a year or more of holding.

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