Gold outshines silver; equity falls by 25% in 2011

The year 2011 started with bullish expectations on the stock markets but, after June 30, there was a complete turnaround as key indices nosedived. But gold and silver have given positive returns though the market for precious metals has seen periods of volatility this year.

Investors are surprised that, despite good performance by many companies, their share prices have fallen to a two-year low on the equity markets. Experts say that the main reasons for the crash on the bourses and the rise of bullion are the global downturn and the depreciation of the rupee against the dollar.

The key stock market indices - Sensex and Nifty - are currently down by 25%, touching a two-and-half-year low. The Sensex crashed by 5,000 points over the year while Nifty plummeted by 1,500 points. On the other hand, gold is up by Rs7,000 per 10 gm and silver by Rs3,000 per kg.  Despite giving better returns than equity, the precious metals were not always good for investors as their prices remained highly volatile. Yet, in retrospect, the yellow metal proved to be the best investment in 2011 as it gave returns of 33% while silver is up by 7%.

For precious metals, the whole year remained highly volatile. At the beginning of the year, gold was trading at Rs20,500 per 10 gram. It shot to a peak of Rs29,525 per 10 gram in December and closed at Rs27,500 per 10 gram.

In the case of silver, the metal was trading at around Rs47,000 per kg at the beginning of the year.  Due to a hike in silver prices in the global market, its price shot up to Rs75,000 per kg in April and then fell to around Rs50,000 per kg by the yearend. Silver has fallen by Rs25,000 from its peak.

Despite the volatility in their prices, the price of gold increased by Rs7,000 and that of silver by Rs3,170. Demand for bullion remained high during the festive season between October and November this year.

The people of Gujarat, who have always put their trust in equity markets, seem to have lost confidence by the end of 2011. With the Sensex falling by 5,000 points and Nifty by 1,500, many companies listed on the bourses came down by 30% to 80% over the whole year. "The year 2011 is unique. The results of all the companies in the corporate sector have improved but due to the global downturn, the depreciating rupee and political instability, the equity markets have crashed," said Yamal Vyas, head of research, Khandwala Integrated Financial Services.

One result of the crash on the bourses is that retail participation has all but evaporated from the stock markets. "The absence of foreign investment and retail participation are believed to be the main factors behind the fall of share prices in 2011," said director of Navkar Share & Stock Brokers Ltd, Karnik Shah. Even in Gujarat, bullion currently has more investors than equity. In 2011, many investors lost huge amounts in silver while people investing in gold gained.

"It was expected that gold may cross the Rs30,000 level but it touched the Rs29,500-mark and then fell to Rs27,500. In the first quarter of 2011, when silver prices were moving towards a peak, there was a huge demand for precious metals. Later, during auspicious periods such as Akha Trij, Shravan, Dusshera and Diwali, the demand for gold was higher than that of silver," said city-based bullion trader, Girish Choksi.