Is Gold Still the ‘Golden’ Investment? Insights into Returns, Risks, and Real Value

Gold remains a reliable hedge and diversification tool in 2025, but its long-term value lies more in wealth preservation than high growth returns. Gold has always held a special place in Indian households, not just as jewelry or a symbol of wealth, but as a trusted form of investment. With prices reaching Rs. 99,060 per 10 grams as of July 31, 2025, many investors are once again looking at gold as a safe and rewarding option. But with other investment avenues like stocks, real estate, and bonds competing for attention, is gold still the best choice for long-term wealth building?

This article explores the recent performance of gold, how it compares with other assets, the risks involved, and what Indian investors should keep in mind when considering it for their portfolios.

Gold’s Performance in 2024 and 2025

The year 2024 was one of the strongest years for gold in over a decade. International gold prices jumped by nearly 27 percent, outshining the BSE Sensex and Nifty 50, which delivered returns of 8.9 percent and 9 percent, respectively. In India, gold gave returns of around 21 percent, and silver wasn’t far behind with a 17 percent rise.

Gold reached 40 new all-time highs in 2024, peaking at $2,777.80 per ounce in October. These gains were driven by global uncertainty, rising central bank demand, and inflation fears. By mid-2025, Indian gold prices crossed Rs. 99,000 per 10 grams, confirming that demand remained strong.

Long-Term Returns: Solid but Mixed

When it comes to long-term performance, gold presents a more nuanced picture. Over the 10-year period from 2015 to 2024, gold delivered a compound annual growth rate (CAGR) of 12.16 percent. Over a 20-year period from 2005 to 2024, the CAGR stands at 8.4 percent, and after adjusting for inflation, it drops to 5.6 percent.

In comparison, US equities delivered annualized returns of 10.6 percent over the same 20 years, or 7.8 percent after inflation. This suggests that while gold provides stability and inflation protection, equities generally offer higher growth over time.

Gold as an Inflation Hedge: Not Always Reliable

Gold is often viewed as a hedge against inflation, but this reputation is not always backed by data. According to research, gold only shows strong inflation-hedging qualities when inflation exceeds 6 percent annually. During periods of moderate inflation, the link between rising prices and gold is weak. For example, during the 2022 inflation surge in the US, gold prices remained flat, surprising many analysts.

That said, gold has protected value during severe crises. In the 1970s stagflation, its prices rose over 2,300 percent, and during the COVID-19 pandemic, gold reached over $2,070 per ounce. It also broke past its inflation-adjusted 1980 high in 2024.

Risks and Costs of Investing in Gold

Despite its advantages, gold is not risk-free. It comes with several costs and challenges:

• Price volatility: Gold prices can swing significantly. In 2024 alone, prices moved up or down by 30 percent within short periods.
• Storage and insurance: Holding physical gold involves expenses. In countries like the UK and Switzerland, annual storage fees range from 0.3 percent to 0.65 percent of the gold’s value.
• No regular income: Gold does not pay interest or dividends. Unlike bonds or stocks, investors rely solely on price appreciation for returns.

Investment Options in Gold

Indian investors have several choices when it comes to gold investments. Each comes with its own pros and cons:

1. Physical Gold: This includes jewelry, coins, and bars. It is tangible and has emotional and cultural value, but carries risks of theft and purity issues.
2. Gold ETFs and Mutual Funds: These are traded on stock markets and offer easy liquidity. They do not involve storage issues but are affected by market movements and fund fees.
3. Sovereign Gold Bonds (SGBs): Issued by the government, SGBs offer 2.5 percent interest annually plus potential price gains. Long-term capital gains are tax-free, but there's an 8-year lock-in period.
4. Digital Gold: Offered by fintech platforms, digital gold allows small investments starting at Rs. 1. It is stored in secure vaults but depends on the reliability of the platform.

How Much Gold Should You Own?

Experts usually suggest keeping 5 to 10 percent of one’s portfolio in gold. Research shows that having gold in the range of 1 to 34 percent can improve overall returns, but most financial advisors caution against going too high. An optimal allocation is believed to be around 17 percent for improved risk-adjusted returns, though that may be too aggressive for many investors.

Large institutions and central banks are also investing heavily in gold. In 2024, global central banks bought 1,045 tonnes of gold, the 15th consecutive year of net buying. India itself purchased 72.6 tonnes, second only to Poland.

When Gold Works Best And When It Doesn’t

Gold performs best when:

• Inflation expectations are high.
• There is global geopolitical instability.
• The dollar is weakening.
• Investors want to diversify and protect wealth.

But gold may disappoint if:

• It is expected to provide regular income.
• It is used for short-term gains or speculation.
• It replaces core growth investments like stocks.

Conclusion

Gold remains a valuable investment, especially for Indian households who see it as both a financial and emotional asset. Its performance in 2024 and early 2025 has shown that it can beat even equities in tough times but gold should be viewed as a supporting player in a diversified investment portfolio, not the lead actor.

It is best used as a hedge against uncertainty and inflation, not as a tool for wealth creation. Whether through SGBs, ETFs, or digital platforms, gold offers flexible options to suit every investor. But understanding its limitations is key. In the long run, gold shines brightest when paired wisely with other growth assets.

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