Think before you buy; falling returns have taken the gloss off gold

Sure, there are always those who profit from any investment, who manage to invest at the lowest price and sell at the peak, but if you look at long-term averages, gold is probably one of the worst forms of investment you can think of. Its value has not even kept pace with inflation — while inflation has averaged around seven to eight per cent annually over the last decade, gold prices have risen just around two per cent.

Over the last fiveyears, they’ve actually fallen by around a fifth. And over a longer period the picture gets worse. If you were to be compensated fully for a rise in inflation — in the form of inflation-indexed bonds, say — since 1980, Rs 100 in 1980 would be worth Rs 361 today. If, on the other hand you bought gold worth Rs 100 in 1980, today that gold would be worth just Rs 279.

Ironically, even real estate which appears to be a much-depreciated form of investment these days, has fared better than gold. While it’s difficult to get standardised indices for changes in property prices, like you can get for, say, gold, any property broker will tell you that real estate has fared much better than gold.

In suburban Mumbai, for instance, the price of a residential flat has appreciated around nine times over the past two decades as against around 2.8 times for gold.

Of course, the picture for property changes dramatically, if you look at a shorter time span. Data obtained from international property consultants CB RichardEllis, for example, shows that prices for Grade A commercial areas in Mumbai have doubled or tripled over the last six years, but have halved over the last four years.

The most lucrative investment, of course, if you go by these trend figures, is in the stock market. So if you invested Rs 100 in 1980 in a stock which kept pace with the Bombay Stock Exchange’s Sensex, that investment would be worth Rs 3,496 today, and Rs 100 invested 10 years ago would be worth four times the amount today.

The problem with investments in property or stocks, of course, is that you have to have the ability to figure out a good deal, the best time to buy and the best to sell. And which one of us hasn’t bought stocks or property at their peak, only to regret it later? If you bought a flat in Mumbai’s Colaba at Rs 5,400 a square foot in 1993, Richard Ellis’ figures show you’d be getting an annual return of around nine per cent since it’s now worth Rs 9,000, but what if you bought it at the 1996-peak of Rs 20,500 a square foot?Well, the best bet would be to invest in fixed return-and-virtually riskless securities. Investments in public provident funds today give a return of 12 per cent annually.

Rs 100 invested in Kisan Vikas Patras in 1980 would be worth Rs 1,230 today; that in NSCs would be worth Rs 921, that in PPF would be Rs 786 (PPF interest is now 12 per cent, as against 10 per cent before 1985) — gold, by contrast, would have appreciated to a mere Rs 279.

Given this, it’s not surprising that, of late at least, the average Indian consumer appears to have wisened up. The latest trend report by the World Gold Council has shown a 24per cent fall in demand for gold in the country — demand in the year’s first quarter has fallen to 192.4 tonnes, from 252.4 tonnes in the same period last year.