Gold under-performing stocks in 2013

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Amid gloomy sentiment across various markets, gold is turning out to be a worse investment avenue than stocks so far this year, yielding double the losses compared to equities.

The gold prices have fallen by nearly 8.5 per cent since the beginning of 2013, while the stock market benchmark Sensex has dipped by about four per cent.

This is in sharp contrast to the earlier trend of gold outperforming the stock market, which has largely continued for more than a decade.

This has led to gold emerging as a preferred asset class, despite repeated attempts by the government to discourage people from parking savings in “idle” assets like gold and channelise them into “productive” assets like equities.

Experts say that gold prices have been on a downtrend in the recent months mainly due to decline in physical buying of the commodity at home and bullish overseas stock markets.

Gold prices have fallen from Rs 31,145 per 10 grams on January 1, 2013 to Rs 28,500 as of Thursday.

The Sensex has skid from 19,580.81 level it witnessed on the first day of the year to 18,789.34 Thursday.

The last few weeks have been particularly bad for the equity market with worries over an early end to the US stimulus, India’s record current account deficit and the depreciating rupee weighing down stocks.

Market men said that whenever equities rise, gold falls comparatively. At the same time, gold prices do not rise that much when the stock markets are gaining.

In times of fear and panic, money moves to gold, they added.

“Gold is an international commodity and has more co-relation with stock markets abroad. Internationally, the US markets have gone up. When equity market goes up so, money automatically come out of gold,” Religare Securities’ EVP and retail research head Rajesh Jain said.

“Whenever rupee depreciates, automatically the price of gold goes up,” Jain added.

Historical data show that gold has given positive returns over the last 12 out of last 15 years. Also, gold prices have appreciated by an average of 20 per cent over the last 10 years, against about 18 per cent for equities.

During 2012, gold prices from about Rs 27,640 to Rs 31,220 per 10 gm during 2012.

Recently, the Reserve Bank of India imposed restrictions on import of gold. The government has also increased the import duty on gold to eight per cent to discourage further purchase of gold.