Gold has held a unique place in financial history. For centuries, it has served as money, a reserve asset, and a store of value. Its appeal is straightforward: it is scarce, durable and carries no issuer risk. Gold does not depend on a government’s promise, a company’s earnings or a bank’s solvency. And that is precisely why it becomes attractive in times of crisis. When inflation rises, currencies weaken, wars erupt or financial trust breaks down, people gravitate toward gold.

Equities come from a very thought process. When you buy a stock, you are buying ownership in a productive business. Business can generate cash flow, grow revenues, earn profits, pay dividends and reinvest for future expansion. This is why equities have historically been the better long-term wealth creator. Gold can preserve purchasing power. Businesses create new value. That distinction is crucial. One is protection. The other is participation in economic growth.

That said, gold’s recent performance has understandably revived the debate. Gold’s performance has looked unusually strong in the last few years. The reason has a name, and it’s called central-bank buying. From 2010 to 2021, central banks bought an average of about 458 tonnes of gold a year on a net basis. From 2022 to 2025, that figure more than doubled to roughly 1,006 tonnes annually. In absolute terms, central banks bought 1,080 tonnes in 2022, 1,037 tonnes in 2023, 1,045 tonnes in 2024 and another 863 tonnes in 2025.

No risk of sanctions

This surge has a good reason. After the freezing of Russia’s reserves in 2022, central banks were reminded that foreign-currency assets can carry geopolitical and sanctions risk. Gold, especially if held domestically, does not face the same vulnerability. Reserve bank managers also wanted to diversify away from concentrated dollar exposure and hold a reserve asset with no counterparty risk. In short, central banks were not buying gold because they expected explosive growth. They were buying insurance in today’s fractured world.

That, along with marginal trader buying (clearly spurred by central bank buying), has helped gold deliver striking returns in recent years. In dollar terms, gold has returned about 16.9 per cent CAGR over the last five years and about 13.9 per cent over the last ten years. Over 20 years, however, the annualised return moderates to around 10.5 per cent, and over 30 years to roughly 8.7 per cent. These are strong numbers, especially for an asset that produces no income.

But this is exactly where equities regain the edge. Once we move beyond the recent fear-driven cycle, broad equities still show stronger long-term compounding. The BSE 500 TRI, which includes dividends and therefore gives a more realistic picture of investor returns, has delivered about 14.77 percent CAGR over five years, 16.14 per cent over ten years and roughly 14.05 per cent over 20 years. That is way ahead of gold over the longer horizon.

Role of hedge in portfolio

This is the most important point in the entire comparison. Gold has performed well despite producing no cash flow, and its recent returns have been flattered by an extraordinary combination of war, reserve insecurity, sanctions risk and aggressive central-bank demand. Yet even in the middle of such a disturbed global backdrop, equities have still compounded better over meaningful long periods. That tells us something fundamental. Gold may thrive on uncertainty, but equities still benefit from the far bigger force of long-term economic growth.

The lesson for investors is not that gold is overrated. Gold has an important role in portfolios as a hedge, a store of value and a stabiliser during crises. But it should not be mistaken for the superior engine of wealth creation. Over time, ownership of productive businesses has proved more rewarding than ownership of a non-yielding metal.

So, does gold hold the edge despite its shine in recent years? The answer is no. Gold has won the recent fear cycle. Equities still hold the long-term edge. Even in a world shaped by war and fragmentation, cash-generating businesses remain better at compounding wealth than a haven asset designed primarily to protect it.

The author is Co-founder & Partner - Arunasset Investment Services

Published on April 12, 2026