100 years of Gold in India and the Lindy Effect

Gold’s Performance: A Century in Review
Gold’s journey from $20.68 per ounce in 1920 to nearly $3,000 today is nothing short of remarkable. Here’s the performance breakdown:
● Starting Price (1920): $20.68
● Current Price (2025): $2,983.65
● Total Return: +14,328%
● Annualized Return (CAGR): 4.85%

The most significant price movements occurred after 1971 when the U.S. abandoned the gold standard. Since then, gold has delivered an impressive, annualized return of 8.42% in USD. But as the chart shows, this journey hasn’t been smooth.

The Dark Side: Drawdowns and Volatility
Gold’s drawdowns reveal its inherent risks. While it serves as a hedge during crises, it is far from a risk-free asset:

Longest Bear Market: Between 1980 and 2000, gold lost 61.3% of its value over 20.5 years.
Other Drawdowns: -36.9% over 1.5 years and -40.1% over six years highlight its susceptibility to steep corrections.

Unlike equities that often recover within years, gold’s recovery periods can span decades. This extended timeline makes it challenging for short-term investors.

Decadal Returns: The Rollercoaster Ride

Gold’s decadal returns are a study in extremes:

Imagine making allocation decisions based on recency bias:

Early 1980: Investors inspired by the stellar returns of the 1970s (+1359%) would have faced two decades of negative returns.
Early 2000: After dismissing gold during the poor-performing 1980s and 1990s, investors would have missed its massive rally in the 2000s (+293%).

This unpredictability underscores why systematically rebalancing portfolios is critical.

How about the Indian Investor in Gold?

But hang on. The price charts and returns above are in US Dollar. It took only 8 INR back in 1973 to buy 1 USD, while it needs more than 10x that in 2025.

Chart shows the performance of Gold in USD and INR since the 1970s.

Returns of Gold in INR and USD were fairly similar up until 1990 because of India’s capital controls and protectionist policies.

Post-1991 reforms, including trade liberalization and currency decontrol, entrenched a more market-driven exchange rate. This institutionalized the rupee’s sensitivity to external shocks, sustaining the post-1990 divergence in gold returns.

This also shows up in the drawdowns seen by Gold in USD versus INR.

On a five-year rolling return basis, the USD return on gold frequently slipped into negative territory especially between 1990 and 2002, while the 5-year INR return on gold mostly stayed positive and has stayed ahead of the USD return for the most part.

Summarising the USD-INR comparison for Gold shows how Gold has not had a negative decade in INR versus two decades of negative returns for the USD.

Why Gold Still Matters: The Lindy Effect

As an asset with over 5,000 years of history, gold exemplifies the Lindy Effect—the idea that the longer something has existed, the more likely it is to endure. Gold’s role as a store of value has survived wars, economic collapses, and technological revolutions.

While it doesn’t generate cash flows like equities or bonds (making it harder to value), its resilience makes it a reliable hedge against systemic risks.

The Case for Gold in a Portfolio

Gold’s low correlation with equities offers significant diversification benefits:

Risk Management: Adding even a small allocation of gold can reduce portfolio volatility.
Systematic Rebalancing: Rebalancing between equities and gold allows investors to sell high-performing assets to buy underperforming ones systematically.
Crisis Hedge: Gold tends to perform well during market downturns or periods of uncertainty.

For example, portfolios with just a 5–10% allocation to gold often achieve better risk-adjusted returns than equity-only portfolios.

A 50:50 portfolio of Gold and the Nifty 50, rebalanced annually, outperformed standalone investments in either asset over more than two decades. This counterintuitive result underscores the Lindy Effect in action—where longevity and resilience in systems or strategies increase their likelihood of enduring success.

We did a comprehensive historical analysis of the optimal combination of Gold, Silver and Equities that delivered the best risk-adjusted returns. Read our report: Silver’s Surge, Gold’s Hedge: Strengthening your Equity Portfolio with Precious Metals

A Systematic Approach Wins

Gold’s history reveals its dual nature: an enduring store of value and a volatile investment prone to long drawdowns. In spite of its volatility in USD, Gold has been a relatively safer asset for Indian investors on account of the Rupee’s depreciation versus the USD. While it won’t generate cash flows or compound like equities over decades, its low correlation with other assets makes it invaluable for diversification.

The best way to include gold in your portfolio is through systematic rebalancing—not as a reactionary move driven by FOMO but as part of a long-term strategy designed to weather market cycles.