Gold has long held the reputation of being a ‘safe haven’ asset. Historically, its performance has surged during periods of geopolitical unrest or economic crisis.
When the markets turn turbulent, investors often find their investing beliefs challenged. During such periods of heightened volatility, the instinctive response is to retreat to safer ground -typically, into assets perceived as stable and secure. This is when flows into instruments like gold, cash and government securities spike, driven by a natural urge to protect capital. But does this short-term reprieve serve long-term financial goals? Let’s examine how gold and equity mutual funds behave during market volatility – and what that means for your wealth creation journey.
Safe Haven Asset
Gold has long held the reputation of being a ‘safe haven’ asset. Historically, its performance has surged during periods of geopolitical unrest or economic crisis. From the global financial meltdown in 2008, the Covid-19 pandemic in 2020, the ongoing Russia-Ukraine conflict or the recent imposition of global tariffs by the Trump administration – each of these events saw gold prices rise sharply. Add to that, with the advent of digital investment into Gold ETFs and Sovereign Gold Bonds (SGBx), investors have ready access to this asset class during uncertain times.
Indeed, gold has a role in a diversified portfolio. It acts as a hedge, particularly in times when inflation runs high or the there is an adverse global event affecting the equity markets.
According to Mayank Bhatnagar, Co-founder & COO at FinEdge, gold has limited potential for long-term returns and the objective for investing in it is to offset volatility in troubled times.
“Unlike equities, gold does not participate in economic growth. Its performance is largely reactive, rising when fear rises and flattens when optimism returns. This makes gold a tactical asset at best and not optimally positioned as a wealth creator,” Bhatnagar added.
Long-Term Wealth Creation
In contrast, equity mutual funds – while more volatile in the short term – can be a driver of long-term wealth creation.
“During periods of volatility, it is common to see investors panic and withdraw from equities. But this knee-jerk reaction often leads to missed opportunities. Volatility, after all, is the price one pays for higher long-term returns,” he explained.
“The importance of goal-based, long-term investing has consistently been emphasised, and equity mutual funds align perfectly with this philosophy. By participating in the potential growth of companies and the broader economy, they allow investors to benefit from compounding over time. What’s more, staggered investment strategies such as SIPs (Systematic Investment Plans) or STPs (Systematic Transfer Plans) actually turn volatility into an advantage, allowing investors to accumulate more when prices are low, thereby reducing average costs and enhancing prospects of long-term gains. While the journey through equity markets is not always smooth, staying invested through market cycles has historically rewarded disciplined investors,” he said.
Therefore, the choice between gold and mutual funds should not be viewed as independent of one another. Both serve different purposes in one’s investment portfolio.
“Gold can act as a stable investment class during uncertain times. But for most long-term goals—whether it’s retirement, a child’s education, or buying a home—equity mutual funds provide the growth potential needed to beat inflation and accumulate real wealth,” he concluded.