Gold + equity: A balanced approach to investing

Imagine you’re building a racing car. Speed is crucial—but without strong brakes and balance, even the fastest car can crash. Momentum investing is like the engine—it thrives on strength and performance. But when market tides turn, this strategy can be vulnerable. That’s where gold steps in—as a stabiliser, cushioning the portfolio during volatility. Together, momentum and gold offer a strategy that’s not just about speed, but about staying power.

With markets swinging between euphoria and panic in recent years, investors have been searching for portfolios that can deliver better returns without extreme risk. Blending momentum with gold offers a powerful combination that aims to smoothen the investment journey—driven by growth, yet protected against shocks.

Momentum is not a market fad. Backed by decades of academic research, momentum investing follows a straightforward principle: stocks that have outperformed in the recent past tend to continue performing well in the short to medium term. This persistence in price action can be attributed to investor behavior, earnings growth persistence, and market inefficiencies. The Nifty 500 Momentum 50 index embodies this strategy by selecting the top-performing stocks based on their recent price strength adjusted for volatility. 

Gold has long been recognised as a store of value and a hedge against inflation, currency depreciation, and global economic crises. For Indian investors, its importance is even more pronounced, given the rupee’s tendency to depreciate against the US dollar during market downturns.

By integrating gold into an equity portfolio, investors can reduce drawdowns during periods of financial distress. The Gold + Momentum 50 strategy seeks to leverage this dynamic, offering a potential balance between stability and growth. 

When momentum and gold are combined, the resulting strategy offers the potential to improve the investment experience. As of July 31, 2025, the performance data paints a compelling picture:

The Nifty 500 index delivered annualised returns of -1.63% (1-year), 21.71% (5-year), and 13.67% (10-year).

A 50:50 allocation to Nifty 500 Momentum 50 and gold yielded 8.55%, 21.86%, and 17.58% respectively over the same periods.

While absolute return differences may appear modest, the key advantage lies in smoother and more stable performance. Over a 5-year rolling period, the median return for the blended strategy stands at 16.89%, compared to 13.43% for the Nifty 500 over the same period. This demonstrates the strategy’s ability to deliver better outcomes while mitigating sharp volatility spikes.

One of the most underappreciated yet vital aspects of portfolio construction is managing drawdowns—the magnitude of losses during market corrections. Historically, the Nifty 500 index has experienced a maximum drawdown of -63.71%. In contrast, the Gold + Momentum 50 strategy has managed to mitigate the drawdowns to just -32.58%.

This suggests that diversification within the strategy has historically played a role in stabilising returns during periods of market uncertainty, potentially helping investors experience smaller fluctuations and recover more steadily. By helping to limit extreme declines, this approach may enable investors to stay invested with greater confidence, ultimately supporting long-term wealth accumulation.

Another compelling aspect of this strategy lies in the correlation dynamics between momentum stocks and gold. While correlation can shift over time, historical data shows that gold tends to behave differently from equities during market stress—sometimes even showing negative correlation.

This inverse or low correlation is what enables the Gold + Momentum strategy to act as a shock absorber. During bullish phases, both components may contribute to returns. In downturns, gold often cushions the blow. The cyclical nature of this relationship creates a built-in hedging mechanism within the portfolio.

In an investing world full of noise and short-term distractions, long-term wealth creation hinges on discipline, diversification, and thoughtful asset allocation. The Gold + Momentum 50 strategy stands out by offering exposure to a momentum factor while embedding protection through an uncorrelated asset class.

Rather than chasing returns or reacting emotionally to market events, investors may consider blending gold and momentum to build a resilient portfolio that can thrive across market cycles. For those seeking a smarter path to sustainable growth with controlled risk, this approach merits serious attention.

(The writer is Head of Research, Passive Business, Motilal Oswal AMC)