Gold had an unprecedented run over the past decade. It has outperformed all other asset classes and has skewed every theory of market risk diversification. Indian households, with an estimated holding of over 34,000 tonnes of gold, are probably the best fund managers in the world. Over the past 20 years, gold has rallied 10 times in value, while the BSE Sensex has risen 9 times, outperforming every other asset class. Over the past 30 years, gold and Sensex have mirrored returns.
It is natural that you may want to question the success of other asset classes and believe that gold is the bulwark of your financial future.
The challenge for financial services is that gold is uncomplicated, while the financial products are not. It is easy to understand, and people value its liquidity and ease of use. For most of the people in India, physical assets like real estate and gold are preferred asset classes. There is still a sense of comfort in holding assets that offer tangible benefits. That is despite financial products like equity assets offering similar long-term performance. It is also very easy to own equity assets due to the digital revolution, which has boosted financial inclusion in India. Yet, less than 10% of people benefit from the growth in the BSE Sensex. In comparison, gold finds its way into every household. As a result, Indian households holding gold in jewellery or other forms are wealthier than ever before.
Your financial future depends on your investment generating a return that is significantly higher than the prevailing inflation rate. The thumb rule is to ensure twice or thrice the inflation rate. In 2026, there is likely to be significant interplay. India’s economy is likely to continue to remain the fastest-growing large economy, according to most experts' views. Many analysts expect listed companies that form a part of major benchmark indices to show strong profit growth. The Reserve Bank of India predicts a benign inflation outlook, and there are signs that borrowing rates will trend downwards. That gives a tailwind to the stock market. Domestic mutual funds continue to see robust net monthly flows and are providing solid support. Foreign portfolio investors have been net sellers in 2025. However, they continue to hold a sizeable stake in Indian equities at over $850bn. They are merely booking profits and would return once profits show a sustainable growth path.
Despite everything falling in place for a sustained equity rally, risk perception is high in financial markets.
The recent US attack on Venezuela and capture of the president could further complicate the geopolitical situation. The world is likely to continue to face risks, and trade relations will suffer in 2026. That is likely to push the risk meter in financial markets higher and give a further tailwind to gold prices, which are already at a record high.
While equity markets carry a higher risk than a precious metal like gold, it is a fact that gold prices barely moved for years after suddenly rallying. Just as the share prices of quality companies do not fall significantly even in a downturn, gold prices rarely crash because new money keeps flowing in. The current buying of gold is mainly due to major central banks. Financial institutions have increased their gold allocations amid an unprecedented rally in stock markets. Surging gold prices are usually a fear factor. Surging equity or bond prices are an indicator of substantial future profits and economic growth. Sophisticated investors maintain a diverse pool of assets to preserve wealth. That applies to you, too. Diversification of risk is essential and cannot be compromised just because a particular asset class is having an unprecedented run.