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GalaTime » A Study of Gold Prices in India

GalaTime

September 19, 2007

A Study of Gold Prices in India

Filed under: gold — Kaushik @ 9:40 am

After the US Fed cut rates yesterday, the dollar weakened and Gold Rose to Highest Since 1980 as Dollar Slumps on Fed’s Cut.

Gold futures for December delivery jumped $11.70, or 1.6 percent, to $735.50 an ounce at 3:26 p.m. in electronic trading on the Comex division of the New York Mercantile Exchange. That marked the highest price for the most-active contract since Feb. 11, 1980.

Indian gold prices are now at Rs 9450 per 10 gms (well below all-time highs), but Tokyo gold futures hit a 22-year high of 2,721 yen per gm.

I figure this is a good time to share the results of some research I did recently. I have collected historical prices of gold in India from 1893 to 2007 (114 years). I wanted to find out the annual rate of return for gold in India, over various time periods, and as is the case with most asset prices in India, getting historical data is the most difficult part. Nevertheless, I managed to find sources for ~70% of the years, and interpolated the rest as best as I could.

Gold prices in India, Rs per 10 gms, 1893-2007

Highlights:

  • A hundred years ago, in 1907, 10 grams of gold cost Rs 1.4 (yes, that’s not a typo!). Today, the same amount costs Rs 9450.
  • Until 1920, the Indian rupee was directly linked to gold, hence the data prior to that year is somewhat irrelevant in computing annual returns.
  • Over long periods (30 years or more), gold in India has generated annual returns of 9-10%.
    • Another way to look at it: the Indian rupee has depreciated by 9-10% a year vs gold.
  • If we draw a trendline rising at 9-10% a year over the entire period, and compare the actual gold price to that ‘predicted’ by the trendline, then we find that gold has gotten undervalued by as much as 60%, but has gotten overvalued by almost 150% at times!
  • Presently, gold is within +/- 20% of the trendline price.
    • I say +/- because this is sensitive to the starting year of the trendline.

A look at gold prices during the 1920-1950 period (up 50x), and 1970-1980 (up 10x) helps one understand why we are supposed to be ‘fascinated’ with gold. When your currency depreciates that fast, and there are no alternative assets easily available to the masses (eg. stocks, inflation-protected bonds, real estate, etc.) there remains only one defence: gold.

I continue to look for more sources of price data and would appreciate any help; we can compute several more metrics such as: returns over 5/10/20 years, cyclicality (if any), typical up/down returns in bull/bear phases, typical over/under valuation in gold prices, trendlines starting at different years, etc.

11 Comments

  1. Thats so true, although modern India now doesn’t believe in investing in Gold.

    Not sure what is the right call on this.!

    Comment by Rushh — September 19, 2007 @ 2:20 pm

  2. Your site is informative.

    Thanks,
    Srikanth

    Comment by Srikanth — September 19, 2007 @ 8:21 pm

  3. what sources of data have you used?

    Comment by Varsha — October 29, 2007 @ 5:55 pm

  4. Varsha,
    Sources used include Ambedkar’s thesis on the rupee, Various news articles, Dollarization.org, goldprice.org, gold.org, etc. As I mentioned, I continue to look for more comprehensive ones - do share if you know of any.

    Comment by Kaushik — October 29, 2007 @ 8:13 pm

  5. As a counter argument, if you have invested Rs 10,000 in Sensex in 1990 it would have been close to Rs 2 Lakhs now.

    In other words Stocks beat the 9% returns on gold by more than a 100%

    Comment by Amit — October 31, 2007 @ 2:59 am

  6. Amit - you miss the point. Over the long term, Gold is a store of currency, not an investment vehicle. It guards against currency risk and hyperinflation. Both stocks and gold have their own separate and non-interchangeable places in a diversified portfolio.

    Comment by snoopy — November 2, 2007 @ 5:16 pm

  7. if Rs. 1.4 was invested in 1907 @ 10% in F.D (that has been the average rate of F.D) ..it would be worth 19,292/- …this is also not a typo…gold has effectively given a return of 9.22% in 100 years…

    Comment by siddhartha — March 1, 2008 @ 8:19 am

  8. 2000 2001 2002 2003
    GOLD 24ct 10g SILVER 1kg GOLD 24ct 10g SILVER 1kg GOLD 24ct 10g SILVER 1kg GOLD 24ct 10g SILVER 1kg
    Jan 4508 8455 4512 7820 4630 7770 5590 8040
    Feb 4471 8335 4453 8120 4730 7440 5865 8195
    Mar 4535 8205 4452 7630 4950 7710 5550 7770
    Apr 4392 8120 4187 7440 5000 8000 5300 7535
    May 4375 8130 4318 7595 5185 7880 5390 7990
    Jun 4390 8045 4351 7695 5445 8620 5690 7590
    Jul 4626 8205 4410 7350 5200 8325 5440 7585
    Aug 4515 8230 4394 7172 5015 7845 5485 8260
    Sep 4543 8325 4505 7087 5165 7680 5710 8180
    Oct 4515 8320 4810 7850 5300 7760 5855 8260
    Nov 4456 8155 4670 7326 5230 7665 5810 8240
    Dec 4555 8040 4456 7105 5230 7590 6040 8765

    Comment by siva — June 4, 2008 @ 3:38 pm

  9. 2004 2005 2006
    GOLD 24ct 10g SILVER 1kg GOLD 24ct 10g SILVER 1kg
    6235 9575 6300 10170 7705 13770
    6005 9665 6115 10180 8190 14605
    5890 10410 6280 11010 8130 14615
    6090 11575 6205 10865 8480 17610
    5790 9510 6275 10565 9715 21000
    5935 9770 6080 11410 9670 19240
    5960 9400 6250 10570 9400 17450
    6065 10760 6255 10915 9965 19135
    6265 10895 6430 10625 9575 20215
    6295 10885 6700 11335 8715 16770
    6445 11425 6900 11620 9130 18775
    6670 12220 7565 13605 9390 20500

    Comment by siva — June 4, 2008 @ 3:39 pm

  10. 2007
    GOLD 24ct 10g SILVER 1kg
    Jan 8835 17975
    Feb 9345 19955
    Mar 9440 19355
    Apr 9410 19345
    May 9065 18266
    Jun 8860 18475
    Jul 8910 18720
    Aug 8945 18020
    Sep 8975 17750
    Oct 9490 17925
    Nov 10520 21100
    Dec 10170 19100

    Comment by siva — June 4, 2008 @ 3:43 pm

  11. Hi
    the above figures are copied and pasted to excel for better sorting
    10g of glod and 1kg bar silver rates are given .
    the rates taken from chennai-india.

    I hope this will helpful for few persons

    Siva

    Comment by siva — June 4, 2008 @ 3:45 pm

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.