Gold investment, are you looking to buy? worried about the price fluctuations and return on investment?

Then you are at the right place to learn some knowledge about this investment.

How can the volatility in gold be analysed? …

Gold price volatility can be analysed easily with the help of statistical measures such as the standard deviation.

In addition to SD, by applying statistical formulae empirically, you can explore much more than the standard deviation.

Moreover, this rule will help you in identifying high-probability opportunities for buying gold and selling gold.

What is an empirical rule? …

First, you should know about standard deviation.

Standard deviation is a statistical formula that tells you how far a data point in a data set will move away from the average of the data set.

Now, an empirical rule is also a statistical formula, which tells you the probability % that the price of the data set will change due to volatility.

 

You can see in the above exe file that the average return from gold is 14%.

and the standard deviation is 18%, you can download that exel file.

Apply one sigma rule to gold investment…

We already know that average roi is 14% and standard deviation is 18%.

In addition, one sigma rule to the left side of the average roi = 14% + 18% = 32%.

One sigma rule to the right side of the average roi = 14% -18% = 4%.

and the two-sigma rule to the left side of average roi is      =   14% – 2*18% = -22%

Again, the two-sigma rule to the right side of the average roi is = 14% + 2*18% = 50%.

Finally, 3 sigma rule on left-hand side of average roi = 14% – 3*18% = -30%.

and the 3 sigma rule on the right-hand side of the average roi = 14% + 3*18% = 68%.

You can see the image, which shows the normal distribution of the gold roi.

Now, with the help of the curve, it is very clear that it will be a good opportunity to invest in gold.

When the gold roi from last year falls on the left-hand side of the average roi of gold.

In addition, when the gold return on investment. from the last year shows cases somewhere near 4% to – 10%, you should jump quickly and invest aggressively.

In addition, you need to start selling gold once it touches the average roi and moves further towards the right-hand side of the average roi. or at least you getting a 20% to 30% ROI after you bought the gold.

However, it may be noted that there is a 100% surety that the gold price will fall from these levels suggested using the 3 sigma rule.

But the probability of more profit and getting a higher loss decreases.

How to maximise the return on investment in gold with this empirical rule? …

Investment doesn’t mean buying only once and selling only once, right?

In order to build big wealth, this process must be repeated several times.

Let’s assume a case study for this and do some analysis on that case study.

In addition, let’s assume that you are going to invest Rs. 1,000,000 in a portfolio.

Also assume that you are investing in 70% gold, i.e., Rs. 60,000, and Rs. 40,000 in a sensex product, which gives 16% p.a. historically.

Again, assume that you will invest 60% in gold only if the gold ROI for the last one year is less than or equal to 0%.

If the gold rate is not less than 0%, you will reverse the asset allocation.

I.e., instead of investing 60% in gold and 40% in sensex, you will invest 60% in debt and 40% in sensex.

However, for simplicity purposes, the volatility in sensex investment is zero, which is not 100% true.

 

Wealth created with 100% gold investment?…

Before doing this, first I will show you what will happen if 100% of the money is invested in gold.

You can see in the above exel file that the wealth created is more than 11.16 crore in a 58-year time period.

And the CAGR generated is just 12% with a 100% gold investment strategy.

Now, let’s see the wealth created with the tactical asset allocation that I said above and rebalancing every year.

You can download the above exel file and can see this tactical asset allocatin has generated a wealth of 44 crore from gold and debt investment.

While 100% gold investment generated only 11.16 crore for the same 58-year period.

In this tactical asset allocation strategy, I have assumed that you will invest 60% of money in gold if ROI from the last one year is less than or equal to 0% and 40% in sensex.

In case the gold rate from last year is higher than 0%, I have assumed the allocation will be reversed, i.e., 40% in gold and 60% sensex at the time of rebalancing, which will be done once a year.

And the CAGR generated from this tactical strategy is 15.7%.

Which is more than 12% CAGR of a 100% gold investment strategy.

Finally, even I got amazingly surprised after seeing that a small analysis generated 33 crores extra for you.

I am still in shock, thinking whether my analysis is right or wrong.

However, the taxation is not considered in this analysis.’

If you consider that part also, you will end up with a lot more wealth than 11.16 crore that got generated with 100% gold investment.

However, we have assumed that sensex has given a constant 16% p.a. return in this article.

If we use actual sensex values, the scenario is interesting.

And I will do that in nifty analysis with empirical rule.

Moreover, if you see the exel file, the CAGR has grown, and at the same time, the standard deviation came down from 18% to 10%.

Which is quite good.

But this may be due to the fact that we have assumed the sensex constant CAGR assumption.

Finally, CAGR in this tactical asset allocation strategy is 15.57%, and standard deviation is 10.01%.

While in pure gold investment strategy, the CAGR is 12% and SD is 18%.

 

 

If you feel that this active asset allocation you can do tactically, you can opt for a fixed allocation strategy and rebalance.

Read this article, Why hiding taxes is not easy now. …

Also read about the gold price calculation for today—how it will be done?

And read about Debt funds types—after sebi categorisation.

Also, read about How to beat one crore wealth with one lakh investment.

And read the article about the best business idea with low investment.

Also, read about High ROI: When it is required to recover the loss in your capital?

And read Why buying a house with a loan is not good?

Also read Nifty 50 Investment: What is the Best Time to Do?