A recent report by Edelweiss Mutual Fund has projected that equities are likely to outperform gold over the next three years. The report highlights that while gold has traditionally been seen as a safe-haven asset during periods of economic uncertainty, equities are expected to thrive amidst the backdrop of economic growth. Such conditions make equities a more attractive investment option in the current market scenario. Historical data has shown that equities tend to generate superior returns during times of economic expansion and rising corporate earnings.
The report draws attention to the Sensex-to-Gold Ratio, which historically indicates that equities may outpace gold in the coming years. Despite gold recording an annual return of 12.55% over the past 25 years, compared to the BSE Sensex's 10.73%, the report suggests that the current economic conditions favour equities. Additionally, over a 10-year period, gold has managed to outperform equities in only 36% of cases. This suggests that, despite short-term volatility, equities have generally provided better returns over longer investment horizons.
However, the Gold April futures contracts at MCX reached a new record high of Rs 86,875/10 gms, marking a 0.21% increase or Rs 189. Gold prices climbed by Rs 2,600/ 10 grams during the month of March.
Gold continued its upward trend as prices reached an all-time high in the global markets, driven by safe-haven demand. Heightened uncertainty and concerns over sluggish global economic growth stemming from U.S. trade tariffs and retaliatory measures by other countries have bolstered safe-haven buying for precious metals.
Gold vs equities
Gold and equities have long been seen as competing investment choices. While gold is revered for its stability during financial crises, equities have historically delivered better returns during periods of economic recovery. The Edelweiss report underlines that equities are positioned to benefit from the anticipated economic growth, which is likely to spur corporate earnings. This positions equities as a potentially more rewarding investment for those seeking to maximise their returns over the coming years.
The investment outlook provided by Edelweiss Mutual Fund reinforces the view that equities remain a strong long-term asset class. While gold will continue to function as a hedge against uncertainty, historical data suggests that investors focused on long-term wealth creation may find equities to be a more beneficial choice. This aligns with trends observed over extended periods, where equities have generally outperformed gold. Such a perspective is crucial for investors looking to optimise their portfolios in alignment with expected market trends.
Overall, the report by Edelweiss Mutual Fund suggests a strategic shift in favour of equities, driven by the prospects of economic recovery and growth. As investors evaluate their options, the potential for equities to deliver higher returns compared to gold is a significant consideration. With the historical performance of equities during economic expansions, this investment outlook offers a compelling case for investors to reassess their portfolio allocations in anticipation of future market dynamics.