Gold vs Stock Market – tezbid

Gold vs Stock Market

Posted by Amit Bhandari on

Is the Indian stock market over-valued? The answer may vary, depending on who you ask, and whether they are invested or holding cash. However, it is worth asking if it is the stock market going up, or is it money that is going down.
Consider gold – historically used as a currency, it is now an ‘asset-class’ – an asset class that has been on fire for the past year. However, gold is not an investment; it is merely a store of value – something self-evident to anyone from 500 BC to 1945 AD. When we say ‘gold prices are up’, what we are really trying to say is that the value of money is down.


Seen from this angle, the Indian stock market looks like a different game altogether.


For instance, Nifty, the Indian benchmark, has increased by 125% in the past five years – so Rs 100 invested in a basket of nifty stocks would have become Rs 225 today. Over the same period, gold price has increased by 105% - so Rs 100 ‘invested’, or rather parked in gold would have become Rs 205. Seen from this perspective, Nifty has gone up by about 10% against gold in five years.
What happens when look back over a longer time-period – say 10 years? Nifty was approximately 7,950 in September 2014 – today it is just over 26,000. So Rs 100 invested in Nifty in 2014 would be Rs 327 today. What about gold? International gold price was $1,200/oz at that time, and is $2,600/oz now. Adjusting for the Rupee-Dollar exchange rate, 100 Rupees invested in gold in September 2014 would be worth Rs 296 today. Nifty has delivered an additional 10% return over gold over the past decade! This of course ignores dividends, which will add to the Nifty return. However, these numbers do indicate that the stock market doesn’t outperform bullion by as wide a margin as is commonly assumed. In other words, in terms of old money (gold), the stock market today is worth about 10% more than what it was worth a decade back.


Perhaps it is not the stock market that is over-valued, but fiat money that is losing value really fast!


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