Analyzing returns and volatility trends is an essential factor before investing in any asset class, irrespective of the time frame you are planning to stay invested. Investors who have a long-term view of over 5 years should aim for disciplined investing instead of trying to time the markets. In this long-term perspective, Gold has provided more than 11 per cent CAGR returns and silver has given 9 per cent CAGR returns in the last 20 years. Recent years have seen silver underperforming gold, but understanding volatility requires comparing returns across various time frames. However one should compare the returns of these investments at different time frames to understand the volatility of their investments especially during periods of global uncertainty. Especially with the tightening of tension in the Middle East, with the Iran-Israel tensions, such an analysis would be beneficial.
If we take only the last year, gold boasted an impressive 19 per cent return as of April 17, 2024. In the last year, silver gave a return of 9 per cent as per Value research data of mutual investing in both silver and gold ETF. The returns from gold are 17 per cent if we take the returns of the last 5 years. However, Silver ETFs were not available 5 years back. According to a report from Business Today, silver prices have jumped 85 per cent in the last 5 years to Rs 70,111 per kilogram in August 2023 from Rs 37,862. The peak price was Rs 76,801 scaled on May 5, 2023, while its five-year low was Rs 34,867 touched on March 17, 2020. A similar hike was seen in the price of gold so over extended tenure both metals have given similar returns.
When examining the volatility of both metals, gold had reached an all-time high in August 2020, when the world was hit by a pandemic and market uncertainties ensued. The surge in gold prices may have convinced you to invest in gold bullion as a more profitable option. Since then the prices have slumped. The returns slumped from 9.9 per cent to 5.98 per cent in 8 months. It was about mid-2022 when gold regained its lost value comparatively. On the other hand, the fall in silver was more severe, it was USD 34.33 per ounce in August 2020 when the pandemic hit, and in September 2022, the price was just USD 20 per ounce when gold had already gained its lost value. So it is clearly more volatile than gold.
Silver's volatility is mainly due to industrial demand being its primary market driver, which is tied closely to economic cycles. So minute fluctuations in supply and demand dynamics in times of economic uncertainties can significantly impact silver prices.
On the other hand, Gold is known for its role as an inflation hedge and tends to outperform equity during periods of high inflation. But to truly get the hedging potential of any asset, around 30 per cent allocation, is required. But with 9 per cent returns in 10 years, a retail investor should not put more than 5 to 10 per cent of his portfolio in gold.
