Today I want to show you some patterns of gold prices from last few decades. There is no interpretation or conclusion but some findings and observations on gold price fluctuations in India. From last 10 yrs gold has been on a bull run and prices have multiplied many folds. In the last couple of weeks, gold prices have been extremely volatile and some analysts also predict that gold price upside movement is in threat. So I found gold prices for last 86 yrs (1925 – 2011) and did some number crunching and some graphs from which we get some interesting findings.
4 yrs Price difference (absolute returns
I found out the price difference for every 4 yrs period i.e. from 1928 to 1925 (yrs) and saw what exactly was the difference in the prices, then 1929 – 1926 and so on… till 2007-2011. Just to give you an idea, gold price in 2008 was 12,500 and in 2011 it was 26,400; so the price difference was 111.20%. I used these data to plot a running 4 yrs price difference so at any point of time you can see how much was the return in those 4 yrs prior to that point. Note that this change in absolute in difference. The major point to note is that majority people think that gold has performed outstanding post 2000 in a time frame of 4 yrs. But from the graph you can see that in 70′s time the 4 yrs period return was much more than what investors saw in recent time.
8 yrs Absolute Price difference runnin
This one is just like above chart, but this time its 8 yrs price difference. We are trying to catch that was the price change in an 8 yrs period. So for example, price in year 1980 was Rs 1330, then after 8 yrs – in 1987, the price was Rs 2570, which is a 93.23%… So like this I calculated the price difference for all the 8 yrs period and graphed it. There are very less 8 yr holding period when the returns from gold was negative, that happened 50′s and 60′s and just 90′s end.
4 yrs CAGR running
The next chart is the CAGR return chart for 4 yrs time frame and the graph is for running periods… that means 1925-1928, 1926-1929… 2008-2011. CAGR return is the main indicator of the performance of any instrument. If you look at the chart below you can see the ups and downs in gold performance and you can see how gold has performed in short run (4 yrs period) for a long time line. You can see that gold returns touched 20%-25% in 70′s and even in recent time it has performed wonderfully… which we all are aware of 
.
8 yrs CAGR running
Then you can see the graph below which shows CAGR return on 8 yr running period. The interesting a little obvious fact is that it hardly gave any negative return in any 8 yrs time frame, only during 50′s and late 90′s it has performed badly.
20 yrs CAGR running
The real test of gold comes from a very long term performance and if we see a 20 yrs CAGR return on rolling basis (1925 – 1944, 1926-1945… 1992-2011), then you can see that most of the times the returns has been in the range of 5-10% and only in the 80′s people got best return if they had bought it in 60′s.
CAGR from 1926 (base year)
This chart is interesting; it calculates the CAGR return of GOLD from 1926 to all the years. I mean CAGR return from 1925- 1926, 1925-1927, 1925-1928 and then 1925-2011… So the base year is always 1925. This shows you what was the very long term CAGR return of gold considering it was bought in 1925. In a way this does not give us very strong conclusion, but still shows us some perspective.
CAGR from 1960 (base year)
This graph is same as above just that the base year taken was 1960 so considering gold was bought in 1960, the graph shows the CAGR return for different holding periods. You can see that apart from those who sold the gold in 80’s realised the best CAGR return, but those who held it for long, still have the returns in range of below 10%.
CAGR from 1980 (base year)
The last chart I want to show is with base year of 1980, you can see that over the long term the returns have converged to 10% & only in the last 10 yrs you can see the returns again going up.
 |
{ 77 comments… read them below or add one }
Hi Manish,
A very nice article as usual. You seem to have done a lot of homework for this.
I think, the charts only suggest one thing, there is still some steam left in Gold at the current levels. I am bullish on gold. Moreover, I believe, one need to have atleast 8-10% gold in his portfolio; and any time is the right time to buy gold, as long as you buy it.
-Dharmesh
Dharmesh
Thats your call , i would persoanlly stay away from gold at current levels
Manish
My conclusion is this: I should not shy away from selling some portion of gold when in need of cash for a goal/emergency. But the current mindset is to always sell equity first and keep the gold for generations — till you are great grandparents. In other words, try to cultivate some love for your well performing funds, just like gold.
Reema
Yea .. i agree to that view
Manish
Dear Manish,
I very happy to get these article for gold.I also interested in investing in Gold but don’t know which time is best for investment & in which mode.So, you can give any advice for it .I want also to maintain 10% in portfolio.
Kisalay
You can invest in physical gold , gold bars , gold ETF
Manish
Dear Manish,
This is amazing!! So much of gold movement data is a wonderful treasure for a person who is really interested in investing gold. Great!!!
Once again thank you for all your information.(iam simply a reader)
with Regards
Chandrasekaran
Thanks Chanrasekran
thanks Manish, very nice info shared..
Dear Manish,
Fantastic article. I appreciate your efforts in doing a thorough analysis of the gold prices over the decades. I need your expert advise whether is this the right time to buy gold ??
Rohit
I cant advice on that .. Over the long term we have seen that gold returns are in range of 5-12% .. over a short term its only speculation
Manish
Mind blowing analysis…very useful!
Yes you done well. Thanks for the articles. last years it shows a jump in gold prices and it gives a doubt that there may a correction also in this year or coming year.
Jerry
Yea but those kind of jumps keep happening , and you cant really take them as basis for decision like selling ..
hi manish
awesome blog….
Thanks
Hi Manish,
A very very infomative article.
Hitesh
Good to know you liked it .. what are the key learnings you took ?
Manish
Hi Manish,
Very nice information you have shared. I personally believe that one should expect a reasonable return of 9-10% when you are holding it for long term.In shorter term you can see the other side also and hence it is more of speculation. The problem is that seeing the short term performance, investor starts considering it for long term holding.
The asset is good when you buy it for the real consumption but should not be looked as an investment product for higher returns.
Yea Jitendra
Agree with your points .. Over a long term one should not expect a lot of REAL return from gold as investments
Manish
My conclusion is that gold never give you long term return on your investment more than inflation rate. Manish, why dont you comper the return of gold against inflation so that it will give us clear picture of our investment in gold.
Ketan
thats a good point .. I have no idea where to find the inflation data for very long term .. Any idea where can we find it ?
Manish
Dear Manish,
Indeed the article was great.
For the inflation data, you can have a look at http://www.tradingeconomics.com/india/inflation-cpi.
Chintan
But that does not allow to export the numbers in excel for FREE .
Thanks for giving the detailed graphic explanation.
We can see from the grapf that sinces 2001 till date the prices are rised steadily up to 2006 but afterwords increased considerably.
Why this has happened is it due to depriciation of Rupee or otherwise.
Chandrashekhar
Chandrashekhar
It depends on so many things .. its all about how stocks are doing and how different economies are doing because gold is considered as safe heaven and most of the people flock to gold when they cant decide on anything else
Manish
One query,prices shown in first table are average for that year or picked for a particular date?Sorry if you have already mentioned it and I do not catch it.
Paresh
THe prices must be average . I got this data from net , so it was not known
Just I forget to mention one more thing in above comment.
It would have been better if analysis have done based on dollar terms than indian rupees.In 1980,after sharp spike,Gold prices in international markets were nearly halved afterwords which do not reflctet here.
Hi Manish,
Do you suggest investing in gold 1gm per month as i have been doing it since 2009. I purchase hard gold. Planning to carry on for a long term investing this way. what do you suggest ?
Gazala
No harm in investing in gold , it will keep your money diversified .. but make sure your expectations should not cross 10-12% in long run , anything extra than that will be bonus. The volatility in gold prices also one of the things you will have to live with .
Manish
hi manish
nice information,from graphs my conclusion is in long term gold gives return around 9-10%,current trend would be, after slightly increase, decrease.wat do uthink
KC
Yea .. thats the conclusion .. but thats a very long term returs , over a period of 10 yrs , you can see different kind of returns like 5% , 10% or even 15% .. So how much you get it dependent on timing .. given the bull run in last 10 yrs , I see next 10 yrs very normal , so not excited too much on gold for next 5-10 yrs
Manish
Manish,
Very good analysis. I never understood Gold, so never invested in gold ETF’s.
Happy with gold in physical form.
Rakesh
Rakesh
Gold in physical form is good enough .. no need to invest in Gold ETF if you are not comfortable
Manish
What a mind-boggling article! It reminds me of the quotes:
Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital. ~Aaron Levenstein and
I abhor averages. I like the individual case. A man may have six meals one day and none the next, making an average of three meals per day, but that is not a good way to live. ~Louis D. Brandeis
I am confused as to a) which base year should we take? b) What are the reasons that price of gold rose from 1968-1988? and again after 2002?
Kirti i loved what aaron levenstein said.
Bemoneyaware
Good quote
.. Gold prices saw huge movement in international markets during 70′s .. which also moved the prices in India too .. while we cant pin point just one reason , its all about demand , supply , emotions, stock markets , overall world economy and then the cycles around business and economy .. its not easy to judge the price movement reasons like that 
What do you say ?
Manish
CAGR of 10% doubles the price in roughly 7 years.
Gold has given a CAGR of 10% between a long period of 86 years, which is not a small return.
Without inflation data at hand, it looks like Gold has indeed kept pace with inflation in these 86 years.
Veerchand
THe long term CAGR for gold from 1925 is around 8% , not 10% .. and yes gold is known to keep its purchasing power and keep pace with inflation
Manish,
I understand that Gold retains its purchasing power over a long period of time. This means that real, inflation adjusted, returns from Gold would be close to zero over a long period of time. Your data looks like it is confirming this theory.
This also means that Gold should not be viewed as investment (something which gives good real return over a long period of time) but should be viewed as insurance (something which protects its purchasing power over a long period of time).
Think of a country like Zimbabwe where inflaion was beyond control or a country like Pakistan where inflation is very high double digits since long time or a country like Libya which is in chaos and there is no sanctity of local currency. It is hard for any domestic asset like stocks or property to produce real returns when inflation is running at, say 20% plus level for many years. In times like this, Gold shines.
Therefore, Gold should be bought on SIP basis to make it about 10% of networth, in my opinion, irrespective of its price. If, God forbid, India heads to Zimbabwe way or even remotely close to it, this 10% allocation to Gold can make difference of life & death, financially.
If you think India can never be like Zimbabwe, I wish you good luck. We have just embarked on biggest welfare scheme in India’s history by making it constitutional right for 65% population to get food grains from Rs 1/- to Rs. 3/- per kg forever. (Please remember, this Rs. 1/- or Rs/ 3/- per kg price can not be changed anytime in future, inflation in food price notwithstanding). This will only lead to spiral of money printing and high inflation over the years. We even do not know what else will come in future – may be free healthcare to 65% of population?
Basically what I mean to say is this – in all financial planning, normally all focus is on domestic assets denominated in rupee. No one thinks of scenario of what if currency goes for a toss like Zimbabwe or Soviet union? I do not think financial planning is complete without safeguarding purchasing power of your networth against rackless political schemes. If India does well, your 90% of assets (other than Gold) would do well and you need not worry. If India goes to hell, your 10% allocation to Gold will feel like heaven.
Ankur
Yea i agree to your points , where did I say that India can not go Zimbabwe way ? I agree to what you say .. but also look at how good the chances are for that in near future .. we can take those assumptions and plan things right now , I feel that would be being too cautious , dont you think so ?
Manish,
As I said, I consider Gold as an insurance for networth against unforseen kind of events, Black Swans so to speak. In another words, Gold is similar to networth as life insurance is to death. These events, be it huper-inflation or India – Pakistan war or rapid rupee depreciation etc will always have very low probabilities in near future, just like my death is. However, as time to take out insurance is when you don’t seem to need it, time to buy Gold is when you don’t seem to need it.
Besides, I am advocating not more than 10% as allocation to Gold. If the need for this insurance doe not arise then it is fantastic for remaining 90% allocation. It will not matter if 10% allocation to Gold returns only 5% in nominal terms beccause, in such cases, remaining 90% would have erpformed well.
Hence, I consider regular buying of Gold up to 10% of netwroth is low cost insurance for a lifetime’s hard work and prudent financial decisions.
What is your view regarding buying of Gold on SIP basis, to a limit of 10% of networth?
Yea .. i agree that upto 10% of allocation is something a common person should look at. However given today’s times where gold movement heavily depends on emotional factors and economic situations where the volatilty can be high , a person who wants to speculate and is ready to take the risk of price movements can look for higher allocation also
Manish
Hi Manish,
Thanks for your good info.
Since 2004 I am regularly purchasing 1 gm gold in physical mode on each month.There are no lapses.Can I conti this for another 10 years?I have kept record of my all purchase.I dont want Gold in paper form.Thanks.
Rajiv
Yea you can do that ..
Great article as usual Manish ….
But what if Gold meets the fate of Aluminium which, back in 1800′s was considered a status symbol, costlier than Gold. Napoleon III, Emperor of France, is reputed to have given a banquet where the most honoured guests were given aluminium utensils, while the others made do with gold.
But one gentleman from Russia found out the cheap process of refining Aluminium which is known as Bayer Process which led to a massive fall in the price & stature of this metal.
I fear if that happens to Gold, where will all the investors specially nations fall to?
Saurav
What are the chances of that happening
.. Its so low that I personally would not consider that to decide anything on gold 
Manish
Hi Manish,
A considerable amount of research and data collection would have gone into computing the above figures and graphs. An excellent work that provides comprehensive data for gold lovers/investors. Personally, I have never been interested in gold. After looking at the figures you have provided, my guess is that gold prices will drop during 2012 and 2013. Depending on how much it drops, the end of 2013 and/or the beginning of 2014 may provide good buying opportunities. It is only a guess.
Regards.
Manohar.
Manohar
Thanks for your appreciation.. Good to hear your views on gold in 2012 and 2013 , I slightly agree with it , but dont want to comment on price movements in short term at all
Manish
Manish there is a very interesting point to note over here which I think not many people including you have noticed. GOLD in 1979 was 937 and in 2011 was 26,400 roughly 26 times. The SENSEX in 1979 was 100 and in beginning of 2011 was around 20,000/= ie 200 times!
Deepak
Yea i didnt look at that point , but its very known fact that over long term gold would have delivered just inflation linked return where as equity has given far better return .
Manish
gold’s shine is forever. we will see more increase in gold price if we see more debt problem in US.
Gold is the safest bet and can be purchased at current level 25-26k (for 22k gold)
Ashish
what is your justification ?
Interested in your suggestion Manish San.
Say if I have 200 gm of Gold Coins (100 gm bought in 2007 & 100 gm bought in 2010) , is it wise to sell it *now* and book profits?
What is your opinion Manish?
Keerthi
Wrong question .. the answer would only depend on how you think about it , not me .. I am not a great follower of gold and I believe in taking the profits out .. so I would sell. but you might not think like that and you should not be .. Take your own decisions .
Manish
Hi Manish,
I think you have provided a very valuable insight upon the movement of gold prices in past 4-8 decades. I think the primary reason behind the consistent movement in the gold prices has been a very limited stock of GOLD commodity on planet earth. It may surprise people, but a very common fact is that the total gold ever mined is 165000 tonnes out of which over 25% is owned / bought by India. To give it a perspective, the total global production for Iron in 2010 alone has been around 2,400,000,000 tonne (around 14500 times more than gold). The wealthier we all are becoming these days, the more will be the demand for Gold and hence it would push up the prices. Adding fuel to the fire is high liquidity in the hands of Investment Banks all across the world. Probably if I have free unlimited source of money, I shall continously buy Gold in large quantity (blaming uncertainity around the globe) – this would push up the gold prices. I would then ask my Gold analyst as well to say that Gold is going to go higher and higher so that every one also jumps upon the frenzy to buy Gold. AND when the time is right, I shall slowly start exiting Gold and make a killing – this would be slump of Gold for a couple of years atleast.
Hence, though bullish on gold from a long term perspective, I tend to be a bit cautious as well considering what is happening in the global markets.
Thanks for your views on gold .
Hi Manish,
Really appreciate your great efforts towards coming out with such wonderful graphs and data. You changed my views , I used to think Golds are really good for long term investment (At least that’s what i have heard from many people)…..But after seeing above data…..i see better options…..Special Thanks to Manish…..:)
Few Queries.
1). The CAGR has been mostly around 8 to 10% which is not so good enough to woe a investor (since inflation was nearly 7% in last 30 years or so) ……….
Do you agree?
2). Rather One should invest in PPF if not in Equity SIP, bcoz PPF will give atleast 7% guaranteed (Though at present it is somewhere around 8.5%) …..Wats your views on the same…..??????
In the above conditions , I have not considered disastrous situation like that of Zimbabwe (Inflation rate at 12530% ………:(:(…)
Yea from gold one shouod not expect more than 8-10% in long run (better to say inflation linked) .. So if you are investing in GOLD for growth of your money , I would say think again
Thanks Manish for informing us the data in detail.
Hi Manish,
Gold still is the safest investement considering the fact that most of the people around the world use/sell first:-
1. Cash,
2. Equities
3. Mutual Funds/other financial investment
4. Fixed Deposits
5. Then gold.
in case of need/urgency.
World simply consider gold to be the safest among any othe commodity/equities/financial instrument. Your comparison for last 86 years though nice but doesnt looks decisive to me because this feeling of safety regarding gold has risen tremendously since last 10-15 years and is still increasing. Also Long term trend analysis is useful only if factors affecting same are constant, while in case of Gold we have seem paradigm changes in factors affecting gold.
Thanks
Yes Anubhav
I agree to your points .. The article never concluded anything . it was open data , thats all .. conclusions are on us to be made
@Manish
Gold Historical Weekly Charts had turned to buy mode this week. And my ichimoku charts double confirms it.
http://cdn.marketcalls.in/wp-content/uploads/2012/02/Gold-Weekly.png
Thats good to hear .. what are ichimoku charts ? And what is the time frame for this buy call ? It is short term like few weeks or longer
I normally use ichimoku charts to rate a chart as a buy/sell. The logic is very simple
1)Buy if the candle closes above the cloud with cloud as support
2)Sell if the candle closes below the cloud with cloud as resistance
After a long time Gold had closed above the cloud on weekly charts. And Ichimoku is mainly used for High Probability trading. And the Breakout on the weekly charts indicates a long term bullish trend with cloud supports coming around $1737(Dollar Terms). Current value of gold is $1756/Ounce
ok , its totally new to me actually .. will read it sometime
Ichimoku Trading system is little popular among my readers for low risk trading. Its a strategic tool rather than a forecasting tool.
Hi Manish,
Thank you for a very insightful note, however :
If u see these numbers for last 20 or 25 years ( don’t think going back almost 90 years will help predict for next 90 ) in light of the following 2 points :
- Gold Price Movement in Dollar Terms
- Rupee Vs Dollar Movement
These 2 charts will help us actually define the purchasing power that 2 paper money & 1 metal hold, because we in India grew at less than 3% for last part of last century, while Dollar ( the western currencies ) appreciated more in the same time, the gold price vs rupee seems depressed.
The case will be very very different if the Rupee was gaining against dollar ( high probability over the next 25 year )
Bharat
Yes .. your points make sense .. however this article does not take that into consideration and there is no conclusion made in this article ..
Manish
Just got into this article as it had a mention of my view.
Before looking at an investment in gold one should definitely look at this article by Warren Buffet
http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/
Also one of the major co-relation of Gold is with currency which many of us might miss. So i would prefer looking at Gold in US dollars where i believe the returns is sub 5 % over the last 100 years.
Gold may be a small part of the portfolio but dont consider it to be something which will provide consistent returns.
Like buffet says one ounce of gold will remain one ounce but as per
The only way it has given a good return is in ornamental use as it adds to the social element
Nooresh
Thanks for your views .. will look at that article !
Really amazing information. Thanks and Great work
Thanks Prakash
Hi Manish,
I had a query. Is it a good idea to go for (Existing) Gold Loan and buy more Gold for a 2 years span and sell it after 2 years to repay the loan amount? Any statistics that I can expect profit/loss in this approach?
Thanks
Ramanath
jagoinvestor.com/forum is a better place to discuss it
Very Good Article On Gold Price….