There appears to be an interesting sort of parallel between the performance of gold and the BSE Sensex in India. Back in 2005, the price of gold was around ₹7,000 per 10 grams and today it is at around ₹87,000 per 10 grams. Sensex is also up from 7,500 levels to September 2024 peak of 85,000. In short, both the assets are up around 11 times in last 20 years. Of course, the Sensex also has a 1.2% dividend yield, but broadly, the CAGR returns on gold and Sensex would be roughly equal in the last 20 years. 

When we talk of wealth creation, the reference is normally to stocks, and the Sensex is the best representation. But, can one also look at gold considering it has also risen 11 times in the last 20 years. There is a small difference here. Firstly, if you look at the Sensex over the last 45 years, consistently given out returns of 16% CAGR. More important, the drawdowns may have been sharp in size, but they have not been too long. On the other hand, if you look at gold, it had a 19-year drawdown from 1980 to 1999 and the consistent rally in gold has only started since the GFC of year 2008. 

Scratch the surface, and you will find some more subtle differences between the story of equities and gold. We have seen about the drawdowns being much longer in gold. Secondly, gold tends to outperform equities by a big margin in times of economic uncertainty, political strife, and geopolitical risk. That is why the sharpest gold rallies were seen after the GFC in 2008, after the European crisis in 2010, COVID pandemic in 2019, and now after the Trump tariffs in 2025. In short, it is in times of such strife that gold outperforms equities, while stocks tend to do better in normal phases of economic growth. If you look at gold over the last 100 years, it has probably just about covered the cost of inflation

The good old argument still holds. For wealth creation, it is still equities. When it comes to equities, it is not just one index price, but you also have stock selection. Gold is just a commodity. The answer lies in mandatorily including gold as part of your portfolio as a hedge. As a hedge, an exposure of 10-15% would be good enough. Gold may have done well in the last 20 years, but that may or may not be repeated. However, adding gold to your investment portfolio, gives you that much needed cushion in tough times. The risk-adjusted returns of a portfolio with the gold hedge will make it a better performer in the long run!