Sensex beats gold by 52% in last 21 yrs; but this Akshaya Tritiya buy gold to hedge against inflation

BSE Sensex total returns have beaten gold prices by over 50% in the last 21 years. However, this still doesn’t mean that investors should not look at buying gold this Akshaya Tritiya. Gold can act an excellent hedge for household budgets against inflation, experts say. S&P BSE Sensex has moved from 4,141 points in 1999 to 49,206 points in 2021 (Friday’s close). Similarly, gold prices gained from an average of Rs 4,234 per 10 grams in 1999 to Rs 47,760 per 10 grams now (Friday’s close of MCX gold futures).

But, in terms of total returns, Sensex has run far ahead of gold. In the last 21 years, Sensex TRI has jumped from 4,356 points on 30 June 1999 to 72,826.88 points on May 7, 2021. Sensex TRI has grown at a CAGR of 14.35 per cent since 1999. On the other hand, gold has offered a compound annualised growth rate (CAGR) of 12.23 per cent during the same period. The data shows the difference of 25,067 points, which is almost 52 per cent higher from the cost of 10 gram gold or Sensex price index of around 49,200.

-Gold price: Rs 47,760 per 10 gram on 7 May 2021 vs Rs 4,234 in 1999
-BSE Sensex: 49,206.47 points on 7 May 2021 vs 4,141 points on 30 Jun 1999
-Sensex TRI:  72,826.88 points on 7 May 2021 vs 4,356 points on 30 Jun 1999

Should you invest in gold or Sensex?

It has been historically proven that equity markets provide the highest returns in the long-term. But equity investments are also subject to high market risks. In the modern period, however, investment in gold has lost its sheen because of the advent of better investment avenues, like stocks and securities, Rajesh Palviya VP – Research (Head Technical and Derivative) Axis Securities, told The Outlooker Online. Along with high returns, equities provide investors with a chance to build a diversified portfolio. Equities provide high liquidity if investors require instant money for any emergency.

The case for buying gold to save you from rising household prices

Gold is a great investment in times of economic distress. “Whereas gold should be seen more as a hedge against inflation,” Narendra Solanki, Head of Research at Anand Rathi Shares and Stock Brokers, told The Outlooker Online. “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,” Rajesh Palviya said.

An investor in index stocks should calculate the total returns index (TRI) instead of the price index to determine the actual returns vis-à-vis the index, Narendra Solanki said. He added that from an investment point of view equities should be preferred as it provides multi bagger return opportunities along with steady cash flows in terms of dividends. Also, in terms of returns, over the last few decades equities have outperformed precious metals.