Think gold prices always go up? This CA shares 'ZERO returns data that will blow your mind'

Economic Times

01-05-2025

As gold prices near ₹1 lakh, Nitesh Buddhadev advises investors to consider gold's historical performance. Gold offered minimal returns between 2012-2019 and 1992-2002. Recent price surges are due to macro events after a period of stagnation. Buddhadev suggests gold as a diversification tool, not a primary growth engine.
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As gold prices hover around Rs 1 lakh per 10 grams, Chartered Accountant Nitesh Buddhadev has urged investors to look beyond the short-term rally and focus on gold's long-term performance. In a LinkedIn post backed by historical data, he pointed out that gold has delivered near-zero returns during long stretches in the past, despite the current excitement around its price surge.Between 2012 and 2019, gold prices moved only slightly — from ₹31,050 to ₹35,220 per 10 grams. Buddhadev noted that such marginal movement translates to poor annualised returns.'Gold gave almost zero returns for 8 years,' he wrote.He also pointed to an earlier example: between 1992 and 2002, gold moved from ₹4,334 to ₹4,990 per 10 grams.'Look at another decade of dull performance: 1992 to 2002 — Gold moved from ₹4,334 to ₹4,990 in 10 YEARS — that's less than 1.5% CAGR again!' he said.Buddhadev explained that the recent rally is a result of a long period of stagnation followed by major global events.'Because it had barely moved for 8 years before that,' he said.He cited factors like COVID-19, war, inflation concerns, and central bank buying as reasons for the sudden price rise.'Every sharp rally often comes after a lull,' he added.Buddhadev made it clear that he is not advising against gold investment.'Am I saying don't invest in Gold? Absolutely not,' he clarified.'It's a great asset for diversification. It's a hedge in uncertain times. But it's not a consistent growth engine like equity. And it's definitely not risk-free.'He advised investors to manage expectations and avoid overexposure.'Don't get influenced by recency bias. Even Gold is volatile. Have realistic return expectations. It too goes through dull decades. Limit your allocation to say 5% to 12%, with a long-term view.'While gold prices rose 25% in the first quarter of 2025, India's gold demand by volume dropped 15%, according to the World Gold Council. The total value of gold purchases, however, increased 22% to ₹94,030 crore.Colin Shah, Managing Director of Kama Jewellery, says that gold prices often change due to global market movements. The final price of a gold jewellery item depends on a few key components.Main factors in pricing gold jewelleryJewellers begin with the daily price of 24-karat gold. Since jewellery is usually made in 22KT, 18KT, or 14KT, the price is adjusted based on purity. For example, 22KT gold has 91.6% pure gold, so its price is 91.6% of the 24KT gold rate. This adjusted rate is then multiplied by the weight of the gold in the jewellery piece.These charges cover the cost of crafting the jewellery and depend on the design's complexity. Jewellers may charge this either as a percentage of the gold price or as a fixed amount per gram.A 3% GST is added to the combined cost of gold and making charges. There may also be additional costs like hallmarking fees.Let's say the price of 24KT gold is ₹96,500 for 10 grams. The price of 22KT gold, which is 91.6% pure, would be ₹88,394 per 10 grams.If a gold chain weighs 8.9 grams, the gold cost will be ₹78,670.66 (₹8,839.40 per gram × 8.9 grams).If the making charge is ₹499 per gram, the total making charge would be ₹4,441.10 (8.9 grams × ₹499).The subtotal becomes ₹78,670.66 + ₹4,441.10 = ₹83,111.76.GST at 3% on this subtotal adds ₹2,493.35.Adding a hallmarking charge of ₹45, the final price of the gold chain is ₹85,650.