Warren Buffet, one of the most famous value investors, has long warned against investing in gold due to its unproductive nature. He once said that gold only does well when investors are fearful and that it “won’t do anything…except look at you.” However, recent market data suggests that his warnings might be misplaced.
A comparison between gold and the Nifty 50 index shows that during times of market turmoil, gold tends to perform better than expected. Over a five-month period this year, gold has risen 16.3%, outpacing the stock market’s 4.3% gain. When looking at a ten-year chart, however, the story is less clear-cut. While gold still outperforms the stock market with an average annual return of 12.9%, the margin between the two is significantly smaller.
A closer examination reveals that fear and uncertainty are key drivers of gold’s performance. Historically, when investors were fearful about economic downturns or other catastrophic events, gold tended to thrive. This phenomenon has been observed in various market downturns, including the COVID-19 pandemic.
Despite this, Buffet’s warnings should not be taken at face value. The stock market still offers an average annual return of 10.6%, which is solid for long-term investors. However, it’s essential to acknowledge that fear can indeed be a winning investment strategy.
As Warren Buffet himself said, “gold is a way of going long on fear.” As someone who has been covering the markets for eighteen years, it’s clear that fear is an ingrained aspect of human nature. The data suggests that gold will continue to outperform during periods of high uncertainty and fear.
Disclaimer: This article aims to provide interesting charts, data points, and thought-provoking opinions. It is not a recommendation and should not be considered as such. Investors are strongly encouraged to consult their advisors before making any investment decisions.
Source: https://www.financialexpress.com/market/global-market-pulse/gold-vs-stocks-a-winning-investment-strategy-revealed/3871858