Gold has always been considered a Hedge for bad times in an Economy. During Inflation gold maintains value while currencies can depreciate. If a country or the whole world is facing an Economic crisis, investors move to gold as a safe store of value because the value of gold is not determined by corporate earnings or Earnings growth.
Gold can be easily traded across the world and is very liquid. Unlike paper currency gold has a finite supply making it a very valuable resource, Because of all these reasons gold remains and maintains as a safe haven asset.
Why is Gold at an all-time high?
There are several reasons for the Gold to rally and outperform major assets around the world. Central Banks around the world have been continuously increasing their gold reserves. Central banks increased their reserves of gold by 1,045 tonnes, and a major chunk of 90 tonnes was bought by the National Bank of Poland.
Geopolitical tensions around the world with ongoing conflicts and instability across various regions have increased anxiety in the markets leading to a shift towards Gold.
Economic Uncertainty like potential fears of recession and inflation has made both banks and Investors make a shift to gold. As historically gold has acted as a hedge against inflation and Economic crisis.
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Gold Performance Compared to Equity
Surprisingly gold has Outperformed Sensex in a 3-year, 10-year, and 15-year time frame. On a 15-year basis, gold has given a CAGR return of 11.50 percent compared to 10.30 for Sensex, On a 5-year basis Gold has given a return of 14.40 percent compared to a 14.60 percent return of Sensex.
On a 3-year time-frame gold outperformed Sensex with 16.80 percent return and Sensex with 11.60 percent. But on a rolling return basis in which performance is calculated over multiple periods. Since 1984 Sensex has outperformed gold on average and over both time frames gold outperformed only 35% of the total observations.
Gold Target by UBS & Macquarie
UBS has given a target of $3,200 on gold which translates to an Upside of 5.96 percent from current levels of $3,020. Macquarie gave a target of $3,500 on gold which translates to an Upside of 15.89 percent from current levels of $3,020.
Written By Abhishek Das
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