Why Gold May Be The Best Asset Class In India For 2020?

Over the last couple of years, gold has been an asset class that has delivered solid returns in India. Looking at the likely possibility of economic chaos caused by the coronavirus, there is a high possibility that gold may outperform other asset classes like debt, equities and real estate in 2020.

Let's take a look at the returns from some gold ETFs:

Most of the other gold ETFs have given similar returns, more or less.

Best asset class in the last 1 and 2 years

Despite critics arguing that gold is a dead investment, the fact remains that it continues to command a "safe haven" tag. Real estate has collapsed over the last 2 years, interest rates have fallen dramatically and stocks have given negative returns over 1 and 2 year period, while gold has seen stupendous returns.

It's highly possible that gold could end 2020 as the best asset class, given the economic chaos caused by the dreaded coronavirus. While most are arguing that the world is headed into a global economic recession, some believe that the recession has already begun.

Why gold could beat equities this year?

Gold began the year with a price of Rs 38,000, and is currently trading at around Rs 43,000. The Sensex on the other hand began the year at around the 41,000 mark and is trading at 29,000 points, which is approximately a drop of 30 per cent. For the sake of logic, we will have to take the returns from the benchmark index, when comparing it to gold, rather than individual stock prices.

For equities to outperform, the Sensex must recover all its loss of 30 per cent and move even higher than what we saw of 41,000 at the start of the year for it to really beat returns from gold. In the present situation it is unlikely to happen and the task looks an uphill one.

We believe that gold would hence be the best asset class, given that interest rates too have dropped dramatically over the last few quarters. The lesser said about real estate the better.

From current levels equities maybe a better bet

The above was more a comparison done from the start of 2020 till the end of 2020 However, if you go from the current levels of the Sensex at 29,000 points and gold at Rs 43,000, chances are equities maybe better by the end of the year than gold.

However, at best one can hazard a guess and a guess can always go wrong. The problem with the present situation is that it is led by the coronavirus, which is a big unknown. Nobody knows when the virus would disappear and when infections would abate. As things stand, there is considerable loss of life and economic damage. How long will it last nobody knows. This is one of the biggest reasons that investors have taken shelter in gold and rightly so. After all, it continues to maintain its "safe haven" tag.

About the author: Sunil Fernandes is the Managing Editor of GoodReturns.in with 25-years of experience. Prior to this, he has worked with frontline newspapers and magazines including Dalal Street Investment Journal, Deccan Herald, Hindustan Times, Oman Economic Review and Gulf Times.