New Delhi [India], March 11: Equities may generate better returns than gold over the next three years, according to a recent report by Edelweiss Mutual Fund.
The report highlighted that while gold tends to perform well during financial crises, equities thrive in times of economic growth.
It said "Given the current Sensex to-Gold Ratio, historical trends suggest that equities may outpace Gold in the next three years".
Historically, equities have outperformed gold over longer periods. The report noted that equities have consistently generated higher returns over five-year and ten-year horizons. Given the current Sensex-to-Gold ratio, historical trends suggest that equities are likely to take the lead in the coming years.
Gold and equities have been competing as investment options for decades. During economic uncertainty, gold often shines as a safe-haven asset, attracting investors looking for stability.
However, during periods of strong economic growth and rising corporate earnings, equities have delivered superior returns.
The report highlighted that over the past 25 years, gold has provided an annual return of 12.55 per cent, while the BSE Sensex has delivered 10.73 per cent.
At first glance, gold seems to have outperformed. However, the report cautioned that this comparison comes at a time when gold is at the peak of a rally. Similar to a race, a snapshot in the middle of the run does not determine the final winner.
Further, the report pointed out that over a 10-year period, gold has outperformed equities in only 36 per cent of cases. This means that in most instances, equities have provided better returns despite their short-term volatility.
It said "Gold has only outperformed Sensex in just 36 per cent of the cases over 10-year periods. This reinforces the notion that equities, despite their volatility".
The findings of the report reinforce the idea that equities remain a strong long-term asset class. While gold may continue to serve as a hedge during uncertain times, history suggests that investors seeking long-term wealth creation may find equities a more rewarding choice.
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