Gold vs Equity (Sensex) 40 year return and risk comparison

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A risk and return comparison of Gold (INR, per gram) and Sensex data over the last 40 years reveals that gold is a high-risk, low-reward investment! This is an updated gold vs equity study, much more comprehensive than previous reports. It is important for investors to understand these results especially when gold returns look promising during periods when equity is down.

In May 2014, a gold vs equity study using data up to 1925 showed that gold was riskier than stocks! The present study uses data from Jan 1979. Before we consider the results, it is important to recognise that the Gold price in INR is linked to not only Gold price in USD but also the exchange rate. In the past, this has resulted in quite different Gold INR and Gold USD movements: Gold Price Movement: USD vs INR

Readers interested in a deep-dive analysis of Sensex data can also refer Sensex Charts 35 year returns analysis: stock market returns vs risk distribution. In what follows we shall consider Sensex price data as a proxy for equity. Due to dividends, the returns shown will have to be enhanced by 1.5% to 2%. No expense fee or tax is considered.

Gold vs Equity Price movement

Gold vs Equity Price movement for the last forty years

The bottom panel uses the log scale. Just like equity, gold too is prone to extended sideway markets.

Gold vs Equity vs Bonds price movement

I use the CCIL Bond Index as a proxy for market linked fixed income and the data below is from Jan 2004. The bottom panel uses the log scale.

Gold vs Equity vs Bonds price movement

Gold vs Equity: risk vs reward charts

3 years

The horizontal axis is the volatility or risk as measured by the standard deviation. The vertical axis the return. The max risk, min risk, max return and min return for each asset class is plotted. So for gold these four data points represent the four corners of the yellow rectangle. So all points of risk and reward observed over every possible 3 year period from Jan 1979 to Jan 2019 fall within this rectangle. The same is true for Sensex (blue rectangle). I have also used the NAV for CCIL BOND INDEX from Jan 2004 as a representative of market linked fixed income.

three year Gold vs Equity: risk vs reward chart

Now, observe the size and movement of the rectangles as the duration is increased.

5 years

five year Gold vs Equity: risk vs reward chart

10 years

ten year Gold vs Equity: risk vs reward chart

15 years

fifteen year Gold vs Equity: risk vs reward chart

20 years

twenty year Gold vs Equity: risk vs reward chart

25 years

twenty five year Gold vs Equity: risk vs reward chart

30 years

thirty year Gold vs Equity: risk vs reward chart

35 years

thirty five year Gold vs Equity: risk vs reward chart


Notice that that size of the gold rectangle is pretty big and is only just below the equity rectangle. Meaning that gold investing has a significant risk. However, return wise, the gold rectangle is always below the equity rectangle. Meaning, its reward (return) is typically lower. Comparable risk but not comparable returns means, high risk and low returns. A terrible no, no.

The sudden decrease in box size when we go from 25 to 30 to 35 a year is because of a decrease in the number of data points. See charts below. This is artificial and should not be mis-interpreted.

Gold vs Equity Rolling Return Charts

Now I present the rolling return charts from which the above graphs were calculated. Please take a moment to appreciate how wild equity and gold returns can swing. That is, observe the max and min returns of both gold and equity as the rolling return increases.

3 years

3 year rolling return Gold vs Equity chart

5 years

5 year rolling return Gold vs Equity chart

10 years

10 year rolling return Gold vs Equity chart

15 years

15 year rolling return Gold vs Equity chart

20 years

20 year rolling return Gold vs Equity chart

25 years

25 year rolling return Gold vs Equity chart

30 years

30 year rolling return Gold vs Equity chart

35 years

35 year rolling return Gold vs Equity chart


Even after 3 decades, gold swings from 7% to 12%, while equity (even with dividends excluded) has double digit returns (although this does mean it will recur in future). The risk however is still comparable. Gold risk is closer to equity risk than bond risk. Again this means, gold investing is unproductive if your idea is to buy and hold. The reward is not commensurate to the risk taken.

Video Version

So how should one invest in gold? I

As shown in this study – Should gold be part of your long-term investment portfolio – there is no need for gold in the portfolio. That is as an investment where we only track the price and expect a return from it.. It is possible to track the price free of risk for a future gold purchase as discussed in the video below.


If want to have gold in your portfolio, then an exposure of at least 10-20% is essential to make a difference. This will have to rebalanced once a year and one should be ready for the tax out go. A less riskly and perhaps more productive way is to adopt trend following approach using moving averages

Read more: When to invest in gold and when to buy it


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  1. With the sovereign gold bond scheme,you also get a 2.5% annual interest apart from the value appreciation. Doesn’t that make it a good investment avenue then, worthy enough to be a small part of your portfolio?

  2. What a waste of time – Having said so, would I have rather held Gold in 2000/09, absolutely yes. It is a hedge (and a good one) – no point comparing it to a core investment like equity.
    PS: Gold returns are in Rs or US$ – that has been a big diff in last 10 years. Despite US$ gold down 30% from peak, Rs gold is flat.

  3. If i compare the BSE Sensex 30 valuation with the valuation of Gold in INR, i see a ration of nearly 1:1 from 1999 onwards. This leads me to believe that Gold with its FX component is able to deliver returns similar to the BSE 30. The 15 year plot seems to say this. This either speaks of a poorly constructed index or an economy run by easy money, which eventually returns just about inflation hedged returns. With this near term context, I find the conclusion non palatable that an easy money economy will have its equity index beat gold with an fx component.

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